ex-post impact assessment · 2019-08-01 · ex-post impact assessment pe 593.803 6 annex ii -...

Tax evasion, money laundering and tax transparency in the

EU Overseas Countries and Territories

Ex-Post Impact Assessment

Tax evasion, money laundering and tax transparency

in the EU Overseas Countries and Territories




Study

At their meeting of 12 October 2016, the coordinators of the European Parliament’s

Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA)

took the decision to request from the Directorate General for European Parliamentary

Research Services (EPRS) to produce the following study: ‘Assessment of the legal, political

and institutional framework on offshore practices related to tax evasion, money laundering

and tax transparency in the EU Overseas Countries and Territories (OCT), as defined in

Annex II (TFEU), and the relations of the OCTs with EU Member States.’

The opening analysis was prepared in-house by the Ex-Post Evaluation Unit of the

Directorate for Impact Assessment and European Added Value, within EPRS, whereas the

specific contributions on individual Member States were commissioned from external

experts.

It is hoped that this analysis will feed into ongoing discussions in the PANA inquiry

committee on the effective implementation and enforcement of EU law in relation to

money laundering, tax avoidance and tax evasion in and by Member States and their

associate and dependent territories.

Abstract

This study aims to present the legal, political and institutional framework governing offshore

practices in the Overseas Countries and Territories (OCTs) of the European Union, which fall under

the sovereignty of four Member States: Denmark, France, the Netherlands and the United

Kingdom. It contains an opening analysis that defines the key concepts, including tax evasion,

money laundering and tax transparency; outlines the scope of the study (to differentiate the OCTs

from other places often mentioned within the context of offshore financial services); and briefly

describes the particular case of Greenland. In addition, a comparative analysis of the legal, political

and institutional framework governing EU relations with and within the respective OCTs is

complemented by an overview of the EU framework and opportunities for action. This aspect can

be of significance, especially in view of the UK’s announced withdrawal from the European Union.

The detailed annexed contributions covering the OCTs under French, Dutch and British rule, and

which constitute a basis for this analysis, were written by external experts.


PE 593.803 4

EDITORS

Dr Isabelle Ioannides and Jan Tymowski, Ex-Post Evaluation Unit

To contact the Unit, please email: [email protected]

ABOUT THE PUBLISHER

This paper has been drawn up by the Ex-Post Evaluation Unit of the Directorate for Impact

Assessment and European Added Value, within the Directorate-General for Parliamentary

Research Services of the Secretariat of the European Parliament.

LINGUISTIC VERSIONS

Original: EN

This document is available on the internet at: http://www.europarl.europa.eu/thinktank

DISCLAIMER AND COPYRIGHT

This document is prepared for, and addressed to, the Members and staff of the European

Parliament as background material to assist them in their parliamentary work. The content

of the document is the sole responsibility of its author(s) and any opinions expressed herein

should not be taken to represent an official position of the Parliament.

Reproduction and translation for non-commercial purposes are authorised, provided the

source is acknowledged and the European Parliament is given prior notice and sent a copy.

Manuscript completed in April 2017.

Brussels © European Union, 2017.

PE 593.803

ISBN 978-92-846-0819-5

doi:10.2861/080148

QA-02-17-310-EN-N

mailto:[email protected]

http://www.europarl.europa.eu/thinktank



PE 593.803 5

Contents

Executive summary ....................................................................................................................... 7

Acronyms ........................................................................................................................................ 9

1. Introduction ......................................................................................................................... 10

2. Objectives of the study........................................................................................................ 10

3. Methodology and structure of the study ......................................................................... 11

4. Key concepts ........................................................................................................................ 12

4.1. Definitions of tax evasion, money laundering and tax transparency ................. 13

4.2. Identifying the Overseas Countries and Territories .............................................. 15

4.3. Which territories are not examined ......................................................................... 17

5. The case of Greenland ......................................................................................................... 20

6. Comparative analysis of the case studies ......................................................................... 22

6.1. Legal framework ........................................................................................................ 22

6.2. Political framework.................................................................................................... 25

6.3. Institutional framework ............................................................................................ 27

7. The EU framework .............................................................................................................. 30

7.1. EU initiatives on tax evasion, money laundering and tax transparency ............ 30

7.2. EU influence on the OCTs ......................................................................................... 33

7.3. Openings for a more pro-active EU ......................................................................... 35

8. Conclusions: the way forward ........................................................................................... 36

9. References ............................................................................................................................. 38

List of Tables

Table 1: Key data on the EU Overseas Countries and Territories ......................................... 15

Annexes

Annex I - In-depth analysis evaluating the legal, political and institutional framework

concerning offshore practices related to tax evasion, money laundering and tax

transparency in the Overseas Countries and Territories (OCT) of France, as defined in

Annex II of the Treaty on the Functioning of the European Union (TFEU), and the relations

of France with those OCTs ........................................................................................................ 41


PE 593.803 6

Annex II - In-depth analysis evaluating the legal, political and institutional framework


transparency in the Overseas Countries and Territories (OCTs) of the Kingdom of the

Netherlands, as defined in Annex II of the Treaty on the Functioning of the European

Union (TFEU), and the relations of the Kingdom of the Netherlands with those OCTs ... 93

Annex III - In-depth analysis evaluating the legal, political and institutional framework


transparency in the Overseas Countries and Territories (OCTs) of the United Kingdom, as

defined in Annex II of the Treaty on the Functioning of the European Union (TFEU), and

the relations of the United Kingdom with those OCTs ........................................................ 145



PE 593.803 7

Executive summary

The release of the Panama Papers has triggered additional efforts – including by the

European Parliament – to understand the relationship, on the one hand, of the Overseas

Countries and Territories (OCTs), some of which are commonly considered as tax havens,

and, on the other, of the EU Member States to which they are related (Denmark, France,

the Netherlands and the United Kingdom). Notwithstanding the importance of according

equal attention to other outermost regions, including those that are of concern in the areas

of financial services and taxation, this study limits its analysis to the OCTs listed in Annex

II of the Treaty on the Functioning of the European Union (TFEU).

With regard to the OCTs’ legal status, the situation differs between the individual Member

States and between the territories subject to their sovereignty. While some of them,

including those active in financial services that ‘belong’ to the UK and three countries of

the Kingdom of the Netherlands (Aruba, Curaçao, and Sint Maarten), seem to have reached

a status of quasi-independent countries with significant freedom for self-governance,

others (especially the French OCTs) remain formally autonomous but under the clear and

tight control of the Member State. In the case of Greenland, which is the only OCT

associated with Denmark, its decision to withdraw from the EU might eventually lead to

full independence once the economic situation allows.

The institutional arrangements of OCTs with the relevant EU Member States directly affect

the possibility to establish policies and adopt regulations, including on taxation and money

laundering. In some of them (especially in the UK OCTs in the Caribbean), the non-existent,

or very low, corporate taxation and the presence of rules allowing the creation of complex

offshore structures, have led to an important increase in the number and scale of

registrations and financial operations, now subject to alleged practices of tax avoidance

and/or worse. As for the anti-money laundering legislation, rules in those OCTs that

remained largely dependent on their continental authorities, seem to be more aligned with

those of the EU (which are themselves currently under revision). In addition, the relatively

high tax burden in Greenland and the French OCTs does not offer the conditions that

would lend them to becoming potential tax havens.

As the EU Treaties do not contain specific legal obligations for the Member States to ensure

the application of the relevant EU law in their respective OCTs, ensuring that international

tax cooperation rules and anti-money laundering are respected becomes a political

responsibility for the four Member States (Denmark, France, the Netherlands and the UK).

Because they rely economically on financial services, and in order to avoid being

blacklisted, the OCTs have adopted various international standards, such as the OECD’s

automatic exchange of information in tax matters. In addition, the sovereign power of the

UK government has influenced at least some regulatory improvements of offshore

practices in Bermuda, the Cayman Islands and the British Virgin Islands. However, the

specific realities that underpin relations between the UK and its OCTs, particularly the fact

that most of them enjoy budgetary self-sufficiency, mean that in practice the UK’s political

leverage is more limited than may be thought.


PE 593.803 8

Beyond the regulatory framework, which for some of the OCTs is more or less similar to

that of the EU acquis communautaire and in line with international standards,

implementation of the law by the local authorities is of concern for a number of the UK and

Dutch OCTs. This is particularly the case for OCTs with smaller populations, such as in the

Caribbean countries of the Kingdom of the Netherlands, where insufficient financial and

human resources can create problems of enforcement.

The EU could use the opportunity of its direct relations with those countries and territories

(especially through the framework of the Overseas Association Decision and the separate

agreements with Greenland), to pressure those OCTs that do not respect international

standards of tax cooperation and transparency to do so. This could be particularly

important in the case of the Caribbean countries of the Kingdom of the Netherlands, where

the central government of the Netherlands (in The Hague) has limited possibilities to

intervene. The improvement in local oversight capacity and mitigation of budgetary limits

on human resources in all the OCTs could also help tackle the challenges of combating tax

evasion and money laundering.

It remains to be seen how the relationship of the EU with the British OCTs will change

following the Brexit negotiations, but the global context might suggest that the same

requirements that the Union could ask of third countries considered as tax havens, could

also potentially apply to the UK.



PE 593.803 9

Acronyms

AEOI Automatic exchange of information

AML anti-money laundering

BEPS Base erosion and profit shifting

BVI British Virgin Islands

CBCR country-by-country reporting

CCCTB Common consolidated corporate tax base

CJEU Court of Justice of the European Union

EU European Union

EVAL Ex-Post Evaluation Unit, European Parliament

FATCA Foreign Account Tax Compliance Act

FATF Financial Action Task Force

GCEFSL Groningen Centre for European Financial Services Law

GDP gross domestic product

MCAA Multilateral Competent Authority Agreement

OAD Overseas Association Decision

OCTA Association of the Overseas Countries and Territories of the European

Union

OCTs Overseas Countries and Territories

OECD Organisation for Economic Cooperation and Development

PANA European Parliament Committee of Inquiry into Money Laundering,

Tax Avoidance and Tax Evasion

PWP Partnership Working Parties

SRA Self Rule Act

TAXE 2 Special European Parliament Committee on Tax Rulings

TFEU Treaty on the Functioning of the European Union

UNODC United Nations Office for Drugs and Crime

USA United States of America

VAT value added tax


PE 593.803 10

1. Introduction

The release of the so-called Panama Papers in April 2016 added a sense of urgency to the

need for tackling the issue of offshore tax havens, including in some of the EU Member

States’ Overseas Countries and Territories (OCTs). The leak of 11.5 million files from the

database of Mossack Fonseca, the world’s fourth-largest offshore law firm, highlighted in

particular the role played in the offshore financial sector by UK Overseas Territories in the

Caribbean, placing the spotlight on the British Virgin Islands (BVI), Bermuda and the

Cayman Islands. More than half of the 200 000 companies for which Mossack Fonseca acted

as a registered agent were based in the British Virgin Islands.1 It should be kept in mind

that these records pertain to the activities of only one law firm in one country. Therefore,

it is difficult to judge what share of the ‘market’ for such services they constitute.

In line with the public outcry against tax avoidance and tax evasion2 and demands for

tightening the offshore sector in the OCTs, point 1.14 of the PANA Committee’s mandate,

concerning the investigation of potential breach of the duty of sincere cooperation,

specifically refers to ‘Member States and their associate and dependent territories’.3

Each of OCTs of the EU has a special relationship with one of four EU Member States:

Denmark, France, the Netherlands or the United Kingdom. They are listed in Annex II of

the Treaty on the Functioning of the European Union (TFEU), according to its Article 198,

and the updated list is included in section 4.2 of this study. The EU Treaties do not contain

any specific legal obligations for Member States to ensure the implementation of EU law

– including laws relevant to countering tax evasion and money laundering and boosting

tax transparency – in their OCTs. Therefore, the acquis communautaire does not

automatically apply to them. However, the special relationship that the aforementioned

Member States have with the OCTs is an argument often used to call on the political

responsibility of Member States to play a role in this area.

2. Objectives of the study

Against this background, the main objective of this study is to contribute to understanding

how Denmark, France, the Netherlands and the United Kingdom are potentially able to

influence their OCTs in the fight against offshore practices. To that end, the study examines

and assesses the effectiveness of the legal, political and institutional framework on offshore

practices in the OCTs of these four Member States with regard to tax evasion, money

laundering and tax transparency. Accordingly, it asks:

1 Caribbean Tax Haven Scrutiny Will Bring Little Reform, Oxford Analytica Daily Briefing, 27 April

2016.

2 The difference is explained in point 4.1.

3 European Parliament decision of 8 June 2016 on setting up a committee of inquiry to investigate

alleged contraventions and maladministration in the application of Union law in relation to money

laundering, tax avoidance and tax evasion, its powers, numerical strength and term of office,

P8_TA(2016)0253; nota bene: only Member States are mentioned in Article 4(3) of the EU Treaty.

http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2016-0253+0+DOC+XML+V0//EN



PE 593.803 11

From a legal perspective, what are the regulations framing the relationship between

Member States and the OCTs on these issues, and what are their strengths and

weaknesses?

From an institutional perspective, how do these regulations apply – if at all – and

how does the organisational set-up in the OCTs facilitate (or not) their

implementation?

From a political perspective, what effect – if any – can the relevant Member States

have in terms of guiding, encouraging and/or persuading the OCTs to counter

tax evasion and money laundering and boost tax transparency? What are the

limits of Member States’ political leverage?

The analysis also attempts to suggest possible options for improved or fail-safe regulations,

legislation and institutional arrangements to ensure that offshore practices related to tax

evasion and money laundering are countered and tax transparency is respected in the

OCTs.

3. Methodology and structure of the study

This study consists of an opening analysis and synthesis of findings, drafted in-house by

the Ex-Post Evaluation Unit (EVAL), followed by external contributions for three of the

four EU Member States that are linked to Overseas Countries and Territories, as identified

in Annex II TFEU.4

The opening analysis, which precedes these three external contributions, seeks to:

define and contextualise the problem related to tax evasion, money laundering

and tax transparency in the EU OCTs;

examine the legal, political and institutional framework of relations between

Greenland and Denmark relevant to tax evasion, money laundering and tax

transparency;

provide a comparative analysis of the strengths and weaknesses of the legal,

political and institutional framework of the three cases examined externally, with

regard to the relevant aspects of the topic at hand;

explain the EU policy framework governing the control of tax evasion and the

countering of money laundering to assess the possibility for and potential of EU

action in the OCTs on these issues; and,

identify possible options for improving the fight against tax evasion and money

laundering and encouraging tax transparency in the OCTs linked to Member

States.

The three annexed contributions were prepared by experts from the countries of the

specific case studies who are specialists in the institutional and legal systems of their own

4 The three more complex case studies – France, the Netherlands and the United Kingdom – have

been outsourced to experts in those countries. Denmark, which has only one OCT (Greenland), is

examined in the opening analysis under section 5.


PE 593.803 12

countries and more specifically the relationship between their country and its OCTs. They

were also able to conduct research in the language of the Member State in question and

consult primary documents in that language.

These external contributions, from which the authors of the study have drawn

substantially to draft the comparative analysis in this introductory part, were prepared as

follows:

The French case study (Annex I) was written by Prof. Dr A. Maitrot de la Motte of

the University of Paris-Est Créteil, France;

The Dutch case study (Annex II) was written by Prof. Dr H.E. Bröring, Prof. Dr

O.O. Cherednychenko, Prof. Dr H.G. Hoogers and G. Karapetian LL.M. from the

Department of Constitutional Law, Administrative Law and Public

Administration and the Groningen Centre for European Financial Services Law

(GCEFSL), University of Groningen, the Netherlands;

The British case study (Annex III) was written by Dr P. Clegg from the Department

of Health and Social Studies of the University of the West of England, Bristol, UK.

Since these contributions were prepared by different experts, they cover relevant issues to

differing degrees and according to the particular needs of each of the case studies.

Nevertheless, they all address the following aspects:

they analyse the legal, institutional and political framework of the relationship

between the EU Member State and its OCTs;

they assess the extent to which this framework allows the EU Member State in

question to exercise its influence on its OCTs in combating money laundering and

tax evasion and promoting tax transparency;

in doing so, they provide an overview of the most relevant legislation that is

applicable on these issues in the OCTs and examine whether or not it is actually

applied;

where possible, they identify options for strengthening the control of tax evasion

and money laundering, and enhancing tax transparency in the OCTs.

To address these questions, the authors and external experts conducted a systematic

analysis of relevant EU and national legislative instruments, European and national case

law, legislative history, international standards, the academic literature and studies as well

as commentaries prepared by expert communities and relevant stakeholders.

4. Key concepts

This chapter explains the main concepts related to the attractiveness of offshore financial

centres, and clarifies which territories are included in the ‘OCT’ category (and which are

not).



PE 593.803 13

4.1. Definitions of tax evasion, money laundering and tax

transparency

The disclosure of the Panama Papers by the international consortium of investigative

journalists was not the first time that taxation matters were discussed in the context of the

global mobility of capital. Even though tax matters are largely left under the competence

of the EU Member States,5 various attempts to limit the financing of terrorism and money-

laundering, and improve the exchange of information between competent authorities,

have already gained momentum and continue to feature prominently on the agendas of

the European and other international institutions.

It is also important to stress, as already mentioned in Houben’s analysis on the mandate of

the PANA Committee, that ‘there is nothing unlawful about offshores and advising on and

assisting in the setting up and management of offshores as such’.6 In that context, a differentiation

needs to be made between tax avoidance (legal act) and tax evasion (illegal act), although

it is often only possible to categorise a specific case after a thorough investigation (which

is not the aim of the present study).

‘Tax evasion’ is defined as an illegal act of evading taxes by concealing income, earned

either legally or illegally, from detection and collection by the tax authorities. This can be

done, for instance, through a false tax declaration, or by placing in a foreign bank money

earned through a legal activity.7

Tax evasion differs from tax avoidance which is the use of legal methods to modify an

individual’s or a company’s financial situation so as to lower the amount of income tax

owed. This is generally accomplished by claiming the permissible deductions and credits

and through sound financial planning techniques, such as phasing the sale of assets over a

period long enough to effect maximum exemption from capital gains tax.8

‘Money laundering’ refers to acts involving the processing of proceeds of crime to conceal

their illegal origin and bring them back into the legal economy. This criminal activity takes

place without the knowledge of the authorities (tax authorities and others, depending on

the nature of the operations).9 This definition is in line with the one used by the Financial

5 Articles 110-112 TFEU essentially concern the prohibition of additional taxes between Member

States, while Article 113 imposes an obligation of unanimity in the Council for any harmonisation.

6 Robby Houben, Mandate of the Panama Inquiry Committee, PE 587.327, Policy Department A:

Economic and Scientific Policy, Directorate General for Internal Policies, European Parliament,

Brussels, November 2016, p. 8.

7 For a more thorough analysis of tax evasion and its impact on financial services, see Isabelle

Ioannides, The Inclusion of Financial Services in EU Free Trade and Association Agreements: Effects on

Money Laundering, Tax Evasion and Avoidance, PE 579.326, European Parliamentary Research Service,

European Parliament, Brussels, June 2016, p. 9.

8 Tax Avoidance, Investopedia, 2017.

9 Isabelle Ioannides, The Inclusion of Financial Services in EU Free Trade and Association Agreements:

Effects on Money Laundering, Tax Evasion and Avoidance, PE 579.326, European Parliamentary Research

Service, European Parliament, Brussels, June 2016, p. 9. For a detailed explanation of the

http://www.europarl.europa.eu/RegData/etudes/STUD/2016/587327/IPOL_STU(2016)587327_EN.pdf

http://www.europarl.europa.eu/RegData/etudes/STUD/2016/579326/EPRS_STU(2016)579326_EN.pdf


http://www.investopedia.com/terms/t/tax_avoidance.asp




PE 593.803 14

Action Task Force (FATF), the international organisation responsible for anti-money

laundering (AML) standard-setting. For the purposes of this study, illegally obtained

money or investments (through an outside party) is transferred through different financial

intermediaries so that its original source is concealed from the taxation or other regulatory

authorities, and is made to appear legal. Money laundering works in three phases: cash

from predicate offence10 is: (a) deposited into accounts (‘placement’); (b) moved into other

institutional units (e.g., through bank transactions) to obscure the origin (‘layering’); and

(c) used to acquire legitimate assets (e.g. through the use of casinos, fake supermarkets)

(‘integration’).11

Tax transparency is seen as a way to reduce the possibility for tax evasion. The aim is to

help populations of resource-rich countries to hold their governments accountable for

these proceeds. To that end, it provides for the exchange of non-resident financial account

information with the tax authorities in the account holder’s country of residence.

Participating jurisdictions that implement automatic exchange of information (AEOI) send

and receive pre-agreed information each year, without having to send a specific request.12

A large number of jurisdictions have announced their plan to implement the new standard.

Around 50 jurisdictions will work towards having their first information exchanges by

September 2017; and many more will follow in 2018. These commitments can be found in

the OECD Joint Statement by the Early Adopters Group, the OECD Declaration on

Automatic Exchange of Information in Tax Matters and the G20 Finance Ministers and

Central Bank Governors’ Communiqué. To bring these initiatives together, the Global

Forum on Transparency and Exchange of Information for Tax Purposes has undertaken a

commitment process to ascertain its members’ implementation timelines.13

In addition, the OECD’s Base erosion and profit shifting (BEPS) initiative includes 15

proposals for action, a number of which are designed to enhance transparency towards

and between tax authorities by exchange of information. BEPS Action 13 is particularly

relevant from the angle of corporate transparency, as it contains features of country-by-

transposition of the definition of money laundering in the relevant legislation in the EU Member

States, see Brigitte Unger et al., The Economic and Legal Effectiveness of Anti-Money Laundering and

Combatting Terrorist Financing Policy, Final Report, ECOLEF Project, Project funded by DG Home

Affairs, European Commission, JLS/2009/ISEC/AG/087, Utrecht University, the Netherlands,

February 2013.

10 According to Article 2 of the United Nations Convention against Transnational Organized Crime,

a ‘predicate offence’ refers to any offence as a result of which proceeds have been generated that may

become the subject of an offence as defined in article 6 of this Convention (i.e., the criminalisation of

the laundering of proceeds of crime). In that sense, a predicate offence is a crime that is usually

committed in preparation of a bigger and more serious crime. For instance, in the context of this

study, a predicate crime would be to produce a fake ID card in order to withdraw money from

someone’s bank account or open a bank account (therefore concealing one’s real identity).

11 Eurostat and United Nations Office for Drugs and Crime (UNODC), Handbook on the Compilation of

Illegal Economic Activities Statistics in National Accounts and Balance of Payments (forthcoming).

12 OECD, Standard for Automatic Exchange of Financial Account Information in Tax Matters, Paris, July

2014.

13 See the OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes.

https://www.oecd.org/tax/transparency/AEOI-early-adopters-statement.pdf

http://www.oecd.org/ctp/exchange-of-tax-information/countries-commit-to-automatic-exchange-of-information-in-tax-matters.htm

http://www.oecd.org/ctp/exchange-of-tax-information/countries-commit-to-automatic-exchange-of-information-in-tax-matters.htm

https://www.g20.org/sites/default/files/g20_resources/library/Communique%20G20%20Finance%20Ministers%20and%20Central%20Bank%20Governors%20Cairns.pdf

https://www.g20.org/sites/default/files/g20_resources/library/Communique%20G20%20Finance%20Ministers%20and%20Central%20Bank%20Governors%20Cairns.pdf

http://www.oecd.org/tax/transparency/automaticexchangeofinformation.htm


http://www.oecd.org/tax/beps/beps-about.htm#monitoring

http://www2.econ.uu.nl/users/unger/ecolef_files/Final%20ECOLEF%20report%20(digital%20version).pdf


http://www.un-documents.net/uncatoc.htm

http://www.oecd.org/ctp/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-account-information-for-tax-matters-9789264216525-en.htm




PE 593.803 15

country reporting (CBCR), even if the disclosure will be done on a confidentiality basis to

tax administrations. The same BEPS Action also provides a guiding framework on transfer

pricing documentation and CBCR, a model legislation, and proposes a multilateral

competent authority agreement (MCAA) on the exchange of CBCR.14

4.2. Identifying the Overseas Countries and Territories

As already explained, the content of Annex II TFEU is decisive in the qualification of a

certain country or territory as an OCT, to which the provisions of Part IV of the TFEU

apply. Table 1 below presents the list – updated in the view of the fact that one of the French

OCTs (Saint-Barthélemy) was added in 2010, and another one (Mayotte) withdrawn in

2012, in accordance with Article 355(6) TFEU.15 For comparison, only the estimated number

of permanent residents and GDP figures are shown here.16 The last column can serve as a

quick way to identify those OCTs that are concerned by the debate on financial services.

Table 1: Key data on the EU Overseas Countries and Territories

EU Member State

Territory Permanent population

GDP per capita (in €)

Main sectors of economic activity

Denmark Greenland 55 847 30 020 Fishing, mining, tourism

France

Saint-Barthélemy 9 131 35 700 Tourism, buildings and

public works, non-financial market sector, trade

New Caledonia

and

Dependencies

268 000 28 931 Mining activities, trade, construction, tourism

French Polynesia 271 800 16 000 Services, tourism

French Southern

and Antarctic

Territories

None n/a n/a

Wallis and Futuna

Islands 12 200 10 100

Agriculture, non-merchant services (education, health and public services), trade

Saint Pierre and

Miquelon 6 081 28 327

Public administrations and merchant services

14 For further information, see OECD, Transfer Pricing Documentation and Country-by-Country

Reporting, Action 13 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project 2015,

Paris, 2015.

15 Only Denmark, France and the Netherlands are mentioned in that provision, while the list of UK’s

OCTs seems not to be subject to change without the modification of the Treaty itself, especially

according to the second sentence of Article 355(2) TFEU.

16 For further information on the size and location of the OCTs, see the respective tables and maps in

the three Annexes.

http://www.oecd-ilibrary.org/docserver/download/2315381e.pdf?expires=1491562484&id=id&accname=guest&checksum=CB4D0E853ED31CE5D4809F26EDE41F45



PE 593.803 16

EU Member State

Territory Permanent population

GDP per capita (in €)

Main sectors of economic activity

Kingdom of

the

Netherlands

Aruba 110 309 27 134 Tourism

Bonaire 19 408 20 545 Tourism

Curaçao 158 986 21 219 Tourism, oil refinery

Saba 1 947 20 075 Tourism, medical school

Sint Eustatius/

Statia 3 193 24 673

Tourism, oil storage terminal

Sint Maarten 39 410 14 447 Tourism

United

Kingdom

Anguilla 16 318 18 763 Tourism, construction,

financial services

Cayman Islands 58 238 55 966 Financial services, tourism

Falkland Islands 2 562 89 941 Fisheries, agriculture,

tourism

South Georgia

and the South

Sandwich Islands

None n/a n/a

Montserrat 4 922 11 160 Construction, tourism, agriculture, banking

Pitcairn 54 n/a Subsistence fishing,

horticulture, and sale of handicrafts

Saint Helena and

Dependencies 5 134 6 378

Tourism, coffee, stamp sales

British Antarctic

Territory None n/a n/a

British Indian

Ocean Territory None n/a n/a

Turks and Caicos

Islands 33 740 20 868

Tourism, construction, financial services

British Virgin

Islands 29 537 30 124 Financial services, tourism

Bermuda 65 091 80 441 Financial services, tourism

Source: Data taken from respective tables in the Annexes (apart from Greenland).17

17 See Greenland in Figures 2016; for some OCTs, US$ was converted to € by a factor of 0.94.

http://www.stat.gl/default.asp?lang=en



PE 593.803 17

As the above table shows, it is a number of the British OCTs that are particularly active in

offshore financial practices. This sector is extremely important to their economies, in terms

of both GDP and employment. For example, around 60 % of the British Virgin Islands’

annual revenue is derived from offshore financial services. Bermuda and the Cayman

Islands also have sizeable interests in the sector. Each territory serves a particular niche.

That is, Bermuda is the third-largest centre for re-insurance in the world and the second-

largest domicile of captive insurance (where the insurance company is owned and

controlled by its insurers), while the Cayman Islands is the world’s leading centre for

hedge funds. Overall, the British Virgin Islands are the leading domicile for international

business companies.18 (See Annex III.)

4.3. Which territories are not examined

Before entering into the analysis of the Overseas Countries and Territories covered by this

study, it is also vital to understand which ‘countries’ and/or territories will not be covered

in detail, even though they may appear in multiple documents related to financial services

in general and in the Panama Papers more specifically.

4.3.1. OCTs with exceptional circumstances

Understandably, this study does not examine the overseas territories that do not have a

permanent population. These include Clipperton, in the Northern Pacific Ocean, the

French Southern and Antarctic Territories that are French OCTs, and the British Antarctic

Territory and British Indian Ocean Territory that are UK OCTs.

4.3.2. Outermost regions

Contrary to the OCTs, the outermost regions (OMR) are territories to which the European

legislation does apply, even if there are exceptions (including fiscal rules) due to their

remoteness and other factors, as listed in Article 349 TFEU. The current list of OMR is

slightly different from the original one provided for in Article 355(1) TFEU, since the status

of Saint-Barthélemy was changed to OCT in October 2010 (and is therefore covered in this

study), while that of Mayotte was changed to OMR in July 2012. Other French OMR are

Guadeloupe, French Guiana, Martinique, Reunion, and Saint Martin. Portugal has two

OMR (the Azores and Madeira), while Spain has one (the Canary Islands).

In addition to describing the applicability of state-aid and (direct and indirect) taxation

rules in these territories, Guersen argues in his conclusion that ‘the French OMR [...] are not

known/(in)famous for offering off-shore tax structures’.19 While Madeira has become an

offshore finance centre based on low corporate taxation,20 the economy of the Azores is

18 Caribbean Tax Haven Scrutiny Will Bring Little Reform, Oxford Analytica Daily Briefing, 27 April

2016.

19 Wessel Guersen, Influence of EU Law on Taxation in the EU Member States’ Overseas Territories and

Crown Dependencies, PE 578.989, Policy Department A: Economic and Scientific Policy, Directorate

General for Internal Policies, European Parliament, Brussels, June 2016, p. 18.

20 A short description is available here: http://www.offshorebanksdirectory.com/en/offshore-

banks/madeira-banks-portugal/

http://www.europarl.europa.eu/RegData/etudes/IDAN/2016/578989/IPOL_IDA(2016)578989_EN.pdf


http://www.offshorebanksdirectory.com/en/offshore-banks/madeira-banks-portugal/

http://www.offshorebanksdirectory.com/en/offshore-banks/madeira-banks-portugal/


PE 593.803 18

dominated by traditional sectors (e.g., agriculture and fishing) and tourism.21 For their part,

the Canary Islands, that share with the French OMR the fact that they are not subject to the

EU VAT regime, are still able to attract foreign companies (with favourable conditions

mixed with some requirements that are claimed to bring advantages to the local

economy),22 but without the negative connotation of ‘tax haven’.23

In accordance with Article 355(1) TFEU, the provisions of the Treaties shall apply to OMR,

and thus, apart from any exceptions included in the relevant legislative acts, the acquis

communautaire constitutes the legal framework in those territories, as in EU Member States.

4.3.3. UK Crown Dependencies

It is important to understand that the UK’s Crown Dependencies (also referred to as the

Channel Islands and the Isle of Man) are a separate category. As a result – just like the

OMR, Gibraltar (see below) and a few other territories – they are not listed in Annex II to

the TFEU. They are often mentioned alongside the OCTs in the context of offshore financial

services, but their governance structure is different, and will only be described here briefly

for the clarity of differentiation.

In short, the Crown Dependencies are the Bailiwick of Jersey, the Bailiwick of Guernsey

and the Isle of Man.24 The UK government is responsible for defence and international

representation of the Crown Dependencies. However, since taxation matters are arranged

according to their autonomous status, the agreements on tax information exchange within

the OECD framework are concluded by their governments directly. Formally though, it is

the Crown (that is, currently, the British Queen), acting through the Privy Council, who

bears ultimate responsibility for ensuring the Dependencies’ good governance. As in the

assessment made in Annex III concerning British OCTs, ‘the independence and powers of self-

determination of the Crown Dependencies are’, in the view of the Members of the House of

Commons, ‘only to be set aside in the most serious circumstances’.25

Offering advantageous financial services on an international scale has allowed the UK

Crown Dependencies to develop significantly as offshore financial centres (making up a

large part of the local economy), and brought increased prosperity. In a special report

presented to the UK Home Secretary in late 1998, it was considered that their broad

regulatory approach was ‘to follow UK styles of regulation, with adjustments for particular needs

21 Nevertheless, a certain reduction in tax rates was considered as unlawful state aid by the European

Commission Decision 2003/442/EC, later up-held by the CJEU in Case C-88/03.

22 Such conditions include a minimum number of local employees and a guarantee of investment.

See Pedro da Cruz, Shelter your Wealth in the Canary Islands, The Telegraph, 29 November 2011.

23 See Laura Secorun Palet, The Rise of Europe’s Unlikeliest Tax Haven, The Daily Dose, 30 September

2015.

24 The Bailiwick of Guernsey includes the separate jurisdictions of Alderney and Sark and the islands

of Herm, Jethou and Lihou. The island of Brecqhou is part of Sark. For further details, refer to the UK

Ministry of Justice at https://www.gov.uk/government/publications/crown-dependencies-jersey-

guernsey-and-the-isle-of-man.

25 UK House of Commons, Justice Committee - Eight Report of Session 2009-2010, p. 45.

http://www.telegraph.co.uk/finance/personalfinance/expat-money/8920635/Shelter-your-wealth-in-the-Canary-islands.html

http://www.ozy.com/fast-forward/the-rise-of-europes-unlikeliest-tax-haven/60712

https://www.gov.uk/government/publications/crown-dependencies-jersey-guernsey-and-the-isle-of-man

https://www.gov.uk/government/publications/crown-dependencies-jersey-guernsey-and-the-isle-of-man

https://www.publications.parliament.uk/pa/cm200910/cmselect/cmjust/56/56i.pdf



PE 593.803 19

and risks of centres serving mainly non-resident customers; and to comply wherever appropriate

with international and EU standards’.26 In a 2009 review of British offshore financial centres,

the Crown Dependencies were considered to be best performers in quality and extent of

financial planning, while a general recommendation for all jurisdictions was to ensure that

‘governance arrangements in their regulatory authorities are sufficient to maintain the integrity

and independence of all decisions taken’.27

Whereas the OCTs are subject to the provisions of and arrangements made under Part IV

of the TFEU, Article 355(5)(c) states that ‘the Treaties shall apply to the Channel Islands and the

Isle of Man only to the extent necessary to ensure the implementation of the arrangements for those

islands’, as set out in the Accession Treaty of 1972.28 As those islands are not part of the

UK’s territory, but are Her Majesty’s possession, specific arrangements were indeed made

under Protocol 3 to the Act of Accession,29 inter alia including them under the Union

Customs Code and ensuring the application of EU law only with regard to trade in

agricultural products. As Guersen explains in his study for the TAXE 2 Committee, the

state aid offered to the Channel Islands and the Isle of Man with regard to offshore tax

constructions is thus outside the control of the European Commission.30 He also holds, in

relation to the EU legislation on financial services, that the status of Crown Dependencies

is that of ‘third countries’. Interestingly, the perspective of Brexit seems not to have

significantly affected those territories so far. They will aim to maintain the current

arrangements with the rest of Europe.31

4.3.4. Gibraltar

Although it is not mentioned explicitly in Article 355 TFEU, its point 3 covers Gibraltar,

and no other territories, by stating that the ‘provisions of the Treaties shall apply to the European

territories for whose external relations a Member State is responsible’. In effect, the EU law

applies directly in that territory, but an exception was made in the UK Act of Accession to

the effect that Gibraltar is excluded from the common customs area. Today, apart from

being an attractive tourist destination and the location of a British military base, it is also

– as a result of the relatively low corporate taxation – an important centre for financial

services (including funds and insurance).32 The applicability of EU law to Gibraltar can be

shown by the cases brought to the Court of Justice of the European Union (CJEU) in relation

to its state-aid decisions, examples of which are enumerated in Guersen’s study mentioned

26 See Review of Financial Regulation in the Crown Dependencies, point S26.

27 See Final Report of the Independent Review of British Offshore Financial Centres, pp. 13-14.

28 When Denmark, Ireland and the UK joined the then European Community.

29 Acts of Accession of Denmark, Ireland and the United Kingdom, Official Journal L 73, 1972, p. 14.




31 See, for example, the official statements referred to in Kirsten Hastings, No Change for Crown

Dependencies’ Financial Services Sectors, International Advisor, 27 June 2016.

32 Offers, such as those made on this website: http://www.gibraltaroffshore.com/index.htm,

confirm that ‘offshore’ remains a positive adjective in some quarters.

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/265705/4109.pdf

https://www.gov.im/media/624053/footreport.pdf

http://eur-lex.europa.eu/legal-content/ro/ALL/?uri=OJ:L:1972:073:TOC



http://www.international-adviser.com/news/1030059/change-crown-dependencies-financial-services-sectors


http://www.gibraltaroffshore.com/index.htm


PE 593.803 20

above.33 Following the UK referendum on Brexit in June 2016, the government and

businesses of Gibraltar are considering various options to maintain a special status and its

advantages.34

5. The case of Greenland

In addition to the French, Dutch and British OCTs, Annex II TFEU also lists Greenland,

which is the only overseas territory of the Kingdom of Denmark.35 The biggest island in

the world was part of the EU between 1973 and 1985, but changed its status after a

referendum held in 1982.36

With a population of less than 60 000 inhabitants (and almost 90 % of them at least partially

of local origin), Greenland is still – despite its large size and harsh climate – comparable to

other islands that are associated with the European Union under the Overseas Association

Decision (OAD). (See section 7.2.1.) Greenland’s economy is based on the fisheries

industry, mineral resources (including uranium), tourism and some land-based industries.

Public finances are still largely dependent on grant support from Denmark (constituting

more than half of the annual budget), but also on its association with the EU.

Greenland’s current legal status is outlined by the Self Rule Act (SRA) of 2009.37 This act

enumerates the areas of responsibilities that can be transferred by the Kingdom of

Denmark to the Greenlandic government, including financial regulation and supervision.

A transfer was already made with regard to direct taxation. The key initiatives of a three-

party coalition government that was established in the end of 2014 included improving

access to financing for new businesses and enhancing Greenland’s corporate tax

competitiveness.38 However, with an income tax rate of 30 %, it can hardly be expected to

become a tax haven comparable to some of the other territories covered by this study. The

new coalition governing Greenland since October 2016 has declared that an ‘analysis must

be undertaken of the introduction of lower corporation tax with a view to improving Greenland’s

competitiveness, self-sufficiency and raising the degree of processing [fish]’ and also promised to

consider cash flows between Greenland and Denmark, and evaluate the establishment of

an own bank for Greenland.39




34 See, for example, Angus Berwick and Carolyn Cohn, Gibraltar Looks to Reinvent Itself after Brexit,

Reuters, 23 September 2016.

35 Denmark is also sovereign over the Faeroe Islands, which are expressis verbis excluded from the

application of EU law by Article 355(5)(a) TFEU.

36 52 % of voters decided then to change Greenland’s relation with the EU.

37 See English translation.

38 US Department of State, 2015 Denmark Investment Climate Statement, p. 7.

39 Coalition Agreement 2016-2018 - Equality, Security, Development, pp. 5-6.



http://www.reuters.com/article/us-britain-eu-gibraltar-idUSKCN11T1AC

http://naalakkersuisut.gl/~/media/Nanoq/Files/Attached%20Files/Engelske-tekster/Act%20on%20Greenland.pdf

https://www.state.gov/documents/organization/241746.pdf

http://naalakkersuisut.gl/~/media/Nanoq/Files/Attached%20Files/Naalakkersuisut/DK/Koalitionsaftaler/Koalitionsaftale_S_IA_PN_eng.pdf



PE 593.803 21

Instead of being fully covered by the instrument related to all OCTs (the 11th European

Development Fund),40 Greenland is eligible for EU funding through a separate EU-

Greenland Partnership, itself based on the relevant Council decision.41 An amount of

€ 217.8 million was foreseen for this cooperation in 2014-2020, and the programming

document,42 signed in October 2014, concentrates on education as the best way to ensure a

diversification of economy and lead to sustainable growth and – possibly – self-sufficiency.

Additionally, a joint declaration on the relations between EU and Greenland/Denmark,

signed in March 2015, established common objectives, indicated that the OCT framework

is appropriate, and supported regular dialogue and consultations.43

In accordance with Article 355(2) TFEU, Greenland (among other OCTs listed in Annex II

to the Treaty) is subject to the provisions of Part IV (on association of the overseas countries

and territories). The additional reference is Article 204 TFEU and Protocol No 34 mentioned

there, which deals exclusively with fishing arrangements.

While Denmark itself is considered a country with an adequate AML system, its laws do

not apply automatically in Greenland.44 The local government is responsible for updating

its legal framework to international conventions and ensuring full implementation of

relevant resolutions (for example, on combating the financing of terrorism). On the basis

of the SRA, Greenland is also authorised to conclude international agreements; it has

already signed, in December 2015, the OECD’s Multilateral Competent Authority

Agreement, which aims to allow automatic exchange of information on financial assets

held by non-residents.45 In recent years, Greenland also signed several bilateral agreements

facilitating the exchange of information relating to tax matters with other OCTs (especially

the UK and Dutch ones) and with the UK Crown Dependencies, as well as certain third

countries.46 From the perspective of private business, Greenland is considered a low-risk

country, including the aspects of financial markets and tax policy.47

40 Where Greenland is eligible only under the regional thematic component.

41 Council Decision 2014/137/EU of 14 March 2014 on relations between the European Union on the

one hand, and Greenland and the Kingdom of Denmark on the other, Official Journal L 76, 15 March

2014, pp. 1-5.

42 See Programming Document for Sustainable Development of Greenland 2014-2020.

43 Joint Declaration by the European Union, on the one hand, and the Government of Greenland and

the Government of Denmark, on the other, on relations between the European Union and Greenland,

Brussels, 19 March 2015.

44 Interestingly, when Member States declared to ensure the application of the Savings Directive in

some of their OCTs, it was not done for Greenland.

45 See OECD’s Automatic Exchange Portal.

46 For the list of those agreements, see http://aka.gl/da/Borger/SKAT/Skatteaftaler - the links

provided on this official website direct to the relevant documents in EN. The main reason that at least

some of the countries and territories signed agreements with Greenland might have been a formal

improvement in their OECD standing, related to the number of agreements signed.

47 Arctic Cluster of Raw Materials, Greenland Benchmarking Report 2016, pp. 35-36.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.L_.2014.076.01.0001.01.ENG


https://ec.europa.eu/europeaid/programming-document-sustainable-development-greenland-2014-2020_en

http://ec.europa.eu/europeaid/joint-declaration-relations-between-european-union-one-hand-and-government-greenland-and-government_en


http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/

http://aka.gl/da/Borger/SKAT/Skatteaftaler

http://acrm.dk/wp-content/uploads/2016/02/Greenland-Benchmarking-Report_WEB_FINAL.pdf


PE 593.803 22

The future of Greenland might be further autonomy or even independence, as declared in

the coalition agreement signed by the new coalition in October 2016.48 It remains to be seen

if any negotiations with Denmark ‘to ensure that Greenland itself can safeguard its own interests

in international negotiations’ will affect financial services and put this OCT on the global

stage. Apart from its interests in fishing, which were at the origin of Greenland’s change of

status in 1985, the increased availability of natural resources of this island and the

competition for rights over the Arctic region, might be decisive in this process.

Regardless of any further changes to the status of Greenland, the text of recital 13 of the

aforementioned Council Decision 2014/03/137 might be an inspiration for continued

cooperation with the European Union: ‘Union financial assistance, allocated through the

partnership, should bring a European perspective to the development of Greenland and should

contribute to the strengthening of the close and long lasting ties with it, while strengthening the

position of Greenland as an advanced outpost of the Union, based on the common values and history

which links the partners.’49 In fact, the same could be said in relation to other OCTs (under

the sovereignty of France, the Netherlands and the UK), including those that matter in

offshore financial services.

6. Comparative analysis of the case studies

This chapter analyses the framework for offshore practices in the OCTs of the EU, taking

into account the information provided in the three annexed country cases. It is important

to underline that this chapter concentrates on those elements that can lead to some general

comparative conclusions, while data necessary for an in-depth assessment of questions

regarding each specific country or territory can be found in the Annexes themselves.

6.1. Legal framework

This section shows that not all OCTs have the same status, either within a particular

Member State or across Member States. As this section goes on to demonstrate, the legal

status of a given OCT also defines the power and leverage that the Member State can have

on influencing decisions, including on tax evasion, money laundering and tax

transparency.

6.1.1. Status of overseas countries and territories

Each EU Member State that currently exercises authority over an overseas country or

territory, must have taken a decision at some point as to how much autonomy it grants to

former colonies or areas that it controlled in another form in the past. The legal status of

EU OCTs also differs among the OCTs of a given Member State. This is important because,

as will be shown in the next section, the content of any EU law – including that pertaining

48 Coalition Agreement 2016–2018 - Equality, Security, Development, p. 2.

49 Council Decision 2014/137/EU of 14 March 2014 on relations between the European Union on the


2014, pp. 1-5.






PE 593.803 23

to combating tax evasion and money laundering – is applicable to a different extent in the

different OCTs of a given Member State.

In practice, this means that the UK OCTs (at least those that are concerned by the Panama

Papers) and three of those of the Kingdom of the Netherlands (the countries of Aruba,

Curaçao and Sint Maarten) seem to have reached a status of quasi-independent countries,

with formal links of a constitutional nature (largely un-used for the political reasons

mentioned below) leaving significant freedom for self-governance.

This, however, is not the case for the three Caribbean territories of the Country of the

Netherlands (Bonaire, Sint Eustatius/Statia and Saba), which are also OCTs of the

Kingdom of the Netherlands.50 They are more dependent on the decisions taken in the

continental capital, The Hague. Similarly, Greenland, the status of which permits a

delegation of a number of policy areas to self-determination, remains for the time being

largely in the realm of Danish regulation.

In the case of France, the arrangements made with its colonies either resulted in

independence or in being subject to the French policy of decentralisation, with three major

categories of delegated powers. The first (with most limited powers) applies to the

territories qualified as OMR by the TFEU (see section 4.3.1 above). The second and third

category (the one referred to as ‘collectivités d’outre-mer’ in the French Constitution and the

other being New Caledonia with its dependencies) are OCTs with limited legal autonomy.

However, it should be noted that autonomy varies amongst cases. Overall, the

decentralised local authorities of the French OCTs are not completely autonomous and

have no sovereignty. On the contrary, they tend to be rather controlled by Paris (the central

government).

6.1.2. Legislative authority

Directly linked to the legal status of the OCTs, is the degree of their legislative freedom.

For the first group mentioned above (UK OCTs and the countries of the Kingdom of the

Netherlands), this freedom is more extensive and only formally limited by the possibility

of the EU Member State’s intervention (this point is exemplified in the three Annexes).

Bermuda is the most ‘independent’ of the UK OCTs, with limited powers for the

government in London even in comparison to other territories.

In contrast, as developed in Chapter VI of Annex II, the Caribbean territories, which as

explained are part of the Country of the Netherlands, are subject to Dutch law and

oversight by the Dutch institutions. In that sense, the Dutch government at the level of the

Country of the Netherlands has significant leverage on the Caribbean territories, including

on issues related to tax evasion, money laundering and tax transparency.

In general, those OCTs that have less autonomy in legislation, including with regard to

control over financial services, can more easily claim to have the same level of regulation

50 The governance set-up of the Kingdom of the Netherlands is explained in a comprehensive manner

in chapter II of Annex II.


PE 593.803 24

as the rest of the European Union – albeit with the standard caveats and disclaimers as to

its implementation and effectiveness (see section 6.3.3).

6.1.3. Standards related to financial services

This study would not have been requested had there been no concerns regarding various

standards applicable to financial services and company law, in general, in at least some of

the OCTs. Indeed, the possibility of avoiding taxation was created by favourable business

conditions in those territories, such as the 0 % corporate income tax in the British Virgin

Islands, the Cayman Islands and Bermuda.

It could be argued that these conditions were created to balance out the disadvantageous

situation resulting from their geographical location and/or limited resources in the local

economy. Nevertheless, these very same conditions also drew the attention of those

interested in tax evasion and money laundering and – more importantly – were possibly

used by them. In effect, as shown in detail in Annex III, the companies established in the

British Virgin Islands hold assets worth probably more than US$ 600 billion, and the assets

of banks in the Cayman Islands reach US$ 1.4 trillion. To complement the picture, Bermuda

(which does not permit offshore banks or shell companies) became the world’s ‘largest

reinsurance centre’, and three other OCTs (Anguilla, Montserrat, and Turks and Caicos

Islands) are also attractive locations for the provision of financial services.

Yet, admittedly not all OCTs that have been under loose control of the EU Member State

concerned, have engaged in tax evasion and money laundering. In the case of the Kingdom

of the Netherlands (see Annex II), the legislation pertaining to tax evasion, money

laundering and tax transparency can generally be considered modern in all six OCTs (and

that regardless of their legal status). It is based on relevant international and European

standards. Rather, it is the implementation and supervision of the law that is a key problem

for these OCTs, which will be discussed in section 6.3 on the institutional framework.

For those countries and territories that have remained largely dependent on their central

government on the European continent (the EU Member States), the legislation in place

seems to be more aligned with that of the EU (which, nota bene, is in constant progress and

is linked to international developments). Less transparent rules, or laws that protect the

secrecy of bank accounts, company registers and financial transactions, are to a large extent

in place in those OCTs that, according to their legal status (see section 6.1.1), have been

given more autonomy.

In contrast, the French OCTs – with the exception of Saint-Barthélemy and Wallis and

Futuna Islands – have such a high tax burden that they do not offer favourable conditions

for becoming tax havens. In fact, the compulsory tax rates charged by the French OCTs

(except for the two above-mentioned) are close to the average of the rates observed in the

OECD (33.8 %) and the European Union.51 This is further compounded by the fact that non-

residents are subject to the taxes due in their country of residence, which means that they

may be subject to double taxation. In contrast, in Saint-Barthélemy and Wallis and Futuna

51 See chapter 2 in Annex I, p. I-55.



PE 593.803 25

Islands, the weaknesses of direct taxes and the relative absence of tax audits may encourage

tax avoidance or tax evasion. (See chapter 2 in Annex I.)

Already before the disclosure of the Panama Papers, even the more autonomous OCTs

were subject to growing pressure with regard to the regulation of offshore capital.

Consequently, they all modified their legislation accordingly (in some cases thanks to

intervention of the Member State nominally responsible) in order to introduce the

provisions related to agreements with the USA (FATCA) or EU Member States and to meet

OECD standards. The example of the Savings Tax Directive 2003/48/EC, which was

eventually imposed on the Cayman Islands, is illustrative of the way in which the UK

government, on the one hand, threatened to use the legal instrument formally permitted

by the constitutional arrangement, but, on the other, also offered compensation for possible

negative effects of implementing this EU act. Other laws, which are seen as making a

territory more attractive for offshore finances (e.g., limited access to beneficial ownership

information), are still defended by the OCTs that have them (i.e., the British Virgin Islands

and the Cayman Islands).52

6.2. Political framework

In order to put the analysis in context, this section briefly considers the historical links

between the Member States and their OCTs, their relationship today, and the economic

development in these overseas countries and territories.

6.2.1. Historical background

The history of relations between the Member States concerned and their OCTs is important

for understanding their present situation, beyond legal provisions. In the case of the UK

OCTs, although their number equals the total number of those related to the other three

EU Member States put together, only the remains of the former British Empire included

numerous other territories. As explained in Annex III, other countries have in the

meantime gained full independence from the UK (today’s OCTs). While the terminology

used in the acts constituting the OCTs’ relations with the UK still contains the word

‘colony’, there has been a tendency to give them as much self-sufficiency as possible.

In order to harmonise its remote overseas territories along geographic lines and to try and

re-organise them along cultural affinities, the Kingdom of the Netherlands abolished the

Netherlands Antilles in 2010 and created two new countries: Sint Maarten and Curaçao.

The three remaining islands – Bonaire, Sint Eustatius/Statia and Saba – became part of the

Country of the Netherlands. As a result, the Kingdom of the Netherlands today has six

OCTs, within the current constitutional set-up of the Kingdom, which fall into one of two

categories:

52 In support of this argument, Chris Blackhurst in his article entitled Britain’s Island Tax Havens

Need Action, which appeared in the London Evening Standard on 2 December 2015, argues: ‘the

Government has asked the Overseas Territories to publish a central register of corporate ownership. [Prime

Minister] Cameron said it was vital for improving transparency and meeting ‘the urgent challenges of illicit

finance and tax evasion’. He was told where to go’.


PE 593.803 26

1. the Caribbean countries of the Kingdom of the Netherlands (i.e. Aruba, Curaçao

and Sint Maarten); and

2. the Caribbean territories of the Country of the Netherlands (i.e. Bonaire, Sint

Eustatius/Statia and Saba). (See chapter II of Annex II.)

A key feature in the analysis of the French OCTs, and their relations among themselves

and with mainland France, is their remoteness. These territories are located in two distinct

geographical regions: the Pacific Ocean (where one finds New Caledonia, French Polynesia

and the Wallis and Fortuna Islands) and the Atlantic Ocean (where Saint-Barthélemy and

Saint-Pierre-and-Miquellon are located). Both of these regions are far away from the central

government in Paris. Moreover, all these territories share a common colonial past, which

followed the French administrative model, whereby only French officials from the central

administration in mainland France held high local functions. (See introduction of Annex

I.)

6.2.2. Current relations

The formal oversight of the British OCTs’ affairs is undertaken by the UK Foreign and

Commonwealth Office and regular contacts are established between the relevant

authorities. The Joint Ministerial Council is the highest political forum, bringing together

UK ministers, elected leaders and representatives of the OCTs ‘for the purpose of providing

leadership and shared vision for the Territories’.53 However, the local authority may often resist

the practical exercise of Member States’ sovereignty over the OCTs. A case in point is the

accusation of the UK acting as a ‘colonial power of old’.54 The British government is thus

reluctant to use its constitutional powers, and even in the area of financial services – where

in some of the OCTs the Governor has responsibility – consensus and persuasion is

preferred (see chapter 4 in Annex III). Importantly, the perspective of the UK’s withdrawal

from the European Union resulted in the creation of a separate Joint Ministerial Council on

European Negotiations, as announced in the communiqué from the meeting in November

2016.55

Similarly, in the case of the Kingdom of the Netherlands, the relationship between the

Country of the Netherlands and the Caribbean countries of the Kingdom is difficult. This

is illustrated in chapter V of Annex II, in the example of efforts to establish an Integrity

Chamber in the Country of Sint Maarten so as to improve the integrity of the entire Sint

Maarten government apparatus. Despite efforts by the Country of the Netherlands to push

for the creation of such a structure, since cooperation is voluntary and based on goodwill,

the project was ultimately shelved following a decision by the Constitutional Court of Sint

Maarten that declared the Integrity Chamber as unconstitutional.

Notwithstanding the constitutional changes that have taken place in the status of the

French OCTs since the abolition of the French overseas law in 1946, French law is still

53 The official website of the UK overseas territories provides inter alia a series of notes signed in

2016, concerning the sharing of beneficial ownership information.

54 See chapter 3.2 in Annex III, p. III-158.

55 UK-Overseas Territories Joint Ministerial Council - 2016 Communique, London, 15 November 2016.

https://www.gov.uk/government/policies/uk-overseas-territories

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/565228/Overseas_Territories_Joint_Ministerial_Council_2016_Communique.pdf



PE 593.803 27

underpinned by a logic of decentralisation. This implies that the powers of the unitary

central state (in Paris) transfer powers and financial resources to the non-sovereign local

authorities. (See Annex I).

6.2.3. Economic context

The formal dependence of OCTs on the relevant EU Member States has an obvious

economic aspect, which must be considered in the assessment of their situation. The variety

of available local resources, geographic location influencing the possibilities of commerce,

tourism and other sectors, as well as the size and skills of local populations, all contribute

to big differences between the levels of economic development of EU OCTs. Those

territories that took the path of developing offshore financial centres have done rather well

in comparison to the others, and their current reliance on such sectors of the economy is an

issue which cannot be easily ignored by regulators and policy-makers. At the same time,

the reassurance of stability is important for tourists and investors alike.

In the case of the UK, only three OCTs with a permanent population (Montserrat, Pitcairn

and Saint Helena with dependencies) receive budgetary aid from London. Furthermore,

the GDP per capita of Bermuda and Cayman Islands is only exceeded by the Falkland

Islands (a special case in itself, but not because of offshore finance). From the perspective

of the UK government, there is clearly a perception of a trade-off between self-rule and

budgetary matters, which also sustains the status quo. Moreover, there are important

advantages for the City of London (being a major centre of financial services in its own

right) in operations with UK OCTs.

All six OCTs of the Kingdom of the Netherlands depend strongly on tourism. They receive

EU financial aid, which during the period of 2010-2014 has concentrated on non-financial

sectors (e.g., renewable energy, education, water and sanitation, and social

development/youth). Their financial services do not appear to be developed, certainly not

to the same extent as the UK OCTs. Further quantitative data on this topic can be found in

chapter II of Annex II.

Similarly, the French OCTs seem not to currently have either the economic grounding or

the necessary infrastructure to favour tax evasion or money laundering activities.

Moreover, the banking sector in the French OCTs is insufficiently developed to allow for

such activities to flourish. As in the Dutch case, the main sectors of the economy are non-

financial: tourism, public works, commercial activities, and mining activities. (See

introduction of Annex I.)

6.3. Institutional framework

This section analyses the financial oversight in the OCTs, which essentially constitutes the

institutional backbone through which the relevant legislation is implemented. It also

assesses its effectiveness. In doing so, this section also points to both structural and

functional limitations in the OCTs on the governance of offshore practices.


PE 593.803 28

6.3.1. Financial oversight and international standards

As already mentioned above, increased international pressure led the EU OCTs to actively

address concerns with offshore financial centres, such as those revealed by the Panama

Papers. Monitoring the respect of international standards on combating money laundering,

as, for example, is done through the Financial Action Task Force (FATF) recommendations,

also applies to the Caribbean territories of the Country of the Netherlands. Equally, it is

argued in Annex I that all the French OCTs meet EU standards in the fight against tax

evasion and money laundering and in the enhancement of tax transparency. French laws

and conventions between these OCTs and the French central government foresee tax

cooperation (automatic exchange of information) at standards that meet international

requirements.

Among the UK OCTs concerned, in three (Anguilla, Montserrat, and Turks and Caicos

Islands) the Governor is directly responsible for the oversight of the financial sector. In the

other territories, however, this is the role of Financial Services Commissions, which in turn

are in contact with the UK government (see chapter 3.4 in Annex III). Notwithstanding the

agreements between OCTs and the USA (FATCA), individual territories’ agreements with

the UK itself provide the tax authorities (but not the public) with access to an increasing

amount of data on offshore accounts. Even more importantly, the OCTs’ commitment to

implementing the OECD’s Standard for Automatic Exchange of Financial Account

Information - Common Accounting Standards, should lead to an improved situation

already in 2017. (See section 6.1.3.)

As concerns the supervision of the compliance with legislation aimed at combating money

laundering and tax evasion and at promoting tax transparency, this partly lies in the hands

of central banks. According to Annex II, in the case of the Caribbean territories of the

Country of the Netherlands, the supervisory tasks are performed by the authorities of the

European Netherlands since their governance is centralised. Thus, financial supervision is

conducted by the Dutch Financial Intelligence Unit, the Dutch Central Bank and the

Netherlands Authority for the Financial Markets.

In contrast, the supervision in the Caribbean countries of the Kingdom of the Netherlands,

which enjoy a certain autonomy, is undertaken locally by the Central Bank of Aruba and

the Central Bank of Curaçao and Sint Maarten. There, however, the quality of financial

supervision and enforcement of legislation relating to money laundering, tax evasion and

tax transparency, are areas of particular concern. In fact, the increasing concerns regarding

the functioning and integrity of the Central Bank of Curaçao and Sint Maarten has led ‘the

Dutch Central Bank to expand its prudential supervision activities in theses overseas countries’.

Nevertheless, cooperation between the Caribbean countries and the Kingdom is voluntary

and, in practice, problematic, as explained in section 6.2.2. In order to influence these

countries, the Dutch government tends to ‘resort to soft tools, such as dialogue with local

authorities or the provision of expert advice’.56

56 Annex II, p. I-110 and II-111.



PE 593.803 29

Regarding the French OCTs, the fight against money laundering is largely based on reports

of suspicions made by professionals (e.g., financial institutions, accountants, notaries and

lawyers) to the national supervisory authorities. However, very few submissions are

received. This is partly due to the weakness of controls and on-site inspections. The absence

of proper oversight and the limited availability of data also means that French authorities

have difficulties in keeping track of tax evasion and money laundering. (See chapter 3 of

Annex I.)

6.3.2. Structural limitations

Notwithstanding the improvements made to the regulatory framework in the relevant

OCTs (especially those under UK sovereignty, where the financial services are a key

economic sector), there are still regulatory gaps which maintain those territories’ fiscal

attractiveness on the global market. In the UK case, the structural position of the Governor,

who reports to the Secretary of State in London as head of the local government, can create

a dilemma: on the one hand, it can be a means of introducing further measures to boost the

transparency of capital operations and, on the other, it allows the choice to continue

existing business practices.

Similarly, the Caribbean countries of the Kingdom of the Netherlands have faced structural

weaknesses related to the poor implementation of good governance principles. While the

Kingdom could in principle safeguard good governance in these OCTs in the framework

of financial oversight, public-private cooperation, and the private sector of the OCTS, in

practice this does not translate into concrete power. Rather, oversight is narrowly

interpreted on issues relating to tax evasion and money laundering, making it very difficult

for the government of the Kingdom of the Netherlands to regulate or supervise the

financial sectors of Aruba, Curaçao and Sint Maarten (See chapter IV of Annex II.)

Regarding the French OCTs, as already explained, the laws concerning tax evasion, money

laundering and tax transparency that are applicable, are very similar to those of mainland

France; therefore, they comply with EU requirements. However, the extent and number of

controls as to whether these laws have been applied and enforced, and whether they

function, are insufficient. In addition, limited and inconsistent data relating to this issue is

available both to the oversight authorities and to the public. (See chapter 3 in Annex I.)

6.3.3. Functional limitations

In addition to the economic considerations mentioned above, the implementation of

recently established rules can also pose significant problems in all OCTs. With regard to

the oversight of the financial services, including those in the Cayman Islands, the low

number of successful prosecutions by local authorities could be an indication that some

rules simply remain on paper.57

57 An argument to the contrary is made by an interested party (Cayman Finance), in Dorothy Scott,

Sharing Financial Information: The Cayman Story Worth Telling, Mondaq Business Briefing, 14 March

2017.


PE 593.803 30

Even the best rules on AML may be ineffective if the OCTs lack enough officials, who also

have the necessary competences, and relevant instruments, to enforce these laws. In the

Caribbean countries of the Kingdom of the Netherlands, for example, insufficient

administrative capacity of the relevant authorities, including limited financial and human

resources, have been pointed out as possible functional weaknesses in the system. These

are compounded by the insufficient experience and knowledge of those working in the

relevant structures. Thus, for instance, despite some improvements in recent years, the

local authorities of Bonaire, Sint Eustatius/Statia and Saba still seem to be rather weak due

to a shortage of money and expertise, but also as a result of a culture of favouritism.

Overall, there is an absence of checks and balances in the system (apart from the judiciary).

(See chapters II and VI of Annex II.)

Equally, the administrative services responsible for carrying out control operations on tax

evasion and anti-money laundering activities in the French OCTs lack the necessary

financial resources to work effectively. Moreover, as with the Dutch case, officials and local

professionals working in the French OCTs for the relevant services are not sufficiently

aware of the risks at stake. (See Annex I.)

7. The EU framework

As explained above, the EU Treaties do not contain any specific legal obligation for the

Member States to ensure the application of the relevant EU law in their OCTs, with the

political responsibility and instruments varying among specific cases. It is also worth

noting that a high level of complacency towards these jurisdictions has already been

criticised in the Financial Action Task Force (FATF) recommendations.

Notwithstanding the limited (but existing) responsibility of the relevant Member States

with regard to the regulation of financial services in their respective OCTs, it is important

first to outline the standards that have been put in place at the European level, and second

to analyse the possibility of direct relations between the countries and territories

concerned, on the one hand, and the EU institutions on the other.

7.1. EU initiatives on tax evasion, money laundering and tax

transparency

7.1.1. Data exchange

Since 2005, the Savings Directive (Directive 2003/48/EC)58 requires the automatic

exchange of information between Member States on private savings income by allowing

tax administrations better access to information on private savers. It has enabled interest

payments made in one Member State to residents of other Member States to be taxed

according to the laws of the state of tax residence. This directive was last amended in March

2014 to reflect changes to savings products and developments in investor behaviour that

58 Dorothy Scott, Sharing Financial Information: The Cayman Story Worth Telling, in Mondaq Business

Briefing, 14 March 2017.



PE 593.803 31

have taken place since it came into force in 2005. However, on 10 November 2015, Council

repealed the directive to address the significant overlap that had developed with other

legislation in this field.59

In December 2014, the Council adopted Directive 2014/107/EU amending provisions on

the mandatory automatic exchange of information between tax administrations. It

extended the scope of that exchange to include interest, dividends and other types of

income. Very importantly, it provided for the comprehensive automatic exchange of

financial account information, and included specific provisions for the identification of the

individuals behind intermediary structures.60 However, the directive only entered into

force in January 2016, with the first exchanges of information only taking place by

September 2017. Therefore, although a significant step forward, its effectiveness cannot yet

be evaluated.

In the framework of the EU tax exchange package,61 the automatic exchange of information

between Member States on their tax rulings was introduced. In that framework, contextual

information (turnover, number of employees and nature of activities) is considered

essential in enabling an informed analysis, as is their disclosure to every country in which

a company is active, as well as for those tax jurisdictions that do not abide by tax good

governance standards (‘tax havens’). Aggregate figures need to be provided for operations

in other tax jurisdictions in the rest of the world.

Tax transparency in and between EU Member States is also assured through country-to-

country reporting, which constitutes a framework where businesses in the extractive and

logging industries have to publish their payments to governments relating to the

exploitation of natural resources. Developed in the framework of the EU ‘action plan on

corporate taxation’, it focuses on measures to make corporate taxation fairer and more

efficient within the single market, including a re-launch of the common consolidated

corporate tax base (CCCTB) and ideas for integrating new OECD/G20 actions to combat

BEPS at EU level.62

In the meantime, as explained in its communication of 5 July 2016 on further measures to

enhance transparency and the fight against tax evasion and avoidance,63 the European

Commission has proposed further modifications to the directive for a better monitoring of

59 Council of the European Union, Savings Taxation Directive Repealed, press release, 796/15, 10

November 2015.

60 Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards

mandatory automatic exchange of information in the field of taxation, Official Journal L 359, 16

December 2014, pp. 1-29.

61 European Commission, Combatting Corporate Tax Avoidance: Commission Presents Tax Transparency

Package, Press release, IP/15/4610, Brussels, 18 March 2015.

62 See Public Country-By-Country Reporting / Corporate Tax Transparency, Banking and Finance,

European Commission, 23 November 2016.

63 European Commission, Communication on Further Measures to Enhance Transparency and the Fight

against Tax Evasion and Avoidance, Communication from the Commission to the European Parliament and

the Council, COM(2016) 451 final, Strasbourg, 5 July 2006.

http://ec.europa.eu/taxation_customs/business/company-tax/action-plan-corporate-taxation_en

http://ec.europa.eu/taxation_customs/business/company-tax/action-plan-corporate-taxation_en

http://www.consilium.europa.eu/en/press/press-releases/2015/11/10-savings-taxation-directive-repealed/

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A32014L0107


http://europa.eu/rapid/press-release_IP-15-4610_en.htm


http://ec.europa.eu/finance/company-reporting/country-by-country-reporting/index_en.htm#cbcr-payments

https://ec.europa.eu/transparency/regdoc/rep/1/2016/EN/1-2016-451-EN-F1-1.PDF




PE 593.803 32

the information to be exchanged, and has also issued a proposal to amend the fourth Anti-

Money Laundering Directive (2015/849/EU) (discussed in section 7.1.2) and the first

Company Law Directive (2009/101/EC) with a view to enhancing transparency in

financial transactions.

The amendments proposed by the European Commission seek to further improve and

reinforce the legal and practical tools made available to the authorities in their fight against

tax fraud and tax evasion. In addition, the European Commission organised a consultation

to gather views on the best possible approach for increasing oversight of tax planning and

ensuring that effective disincentives apply for promoters and enablers of aggressive

schemes.64

7.1.2. Anti-money laundering

Already in 1997, in its ‘action plan to combat organised crime’, the EU set an obligation on

the EU Member States ‘to take action and provide adequate defences against the use by organised

crime of financial centres and offshore facilities, in particular where these are located in places subject

to their jurisdiction’.65

In line with this objective, the EU has developed an Anti-Money Laundering (AML)

Directive, which is currently being revised for the fourth time. Already, the fourth AML

Directive of 20 May 2015 has empowered the EU to identify third countries with strategic

deficiencies in the area of anti-money laundering or countering terrorist financing (known

as the EU ’list of high risk third countries‘) and obliges EU Member States to apply

enhanced due diligence measures on financial flows coming from and going to these listed

countries.66 The action plan against terrorist financing that followed, called on Member

States to bring forward the date for effective transposition of the directive by the end of

2016.67

The fifth AML Directive, proposed by the European Commission following the Panama

Papers leak, promises to reinforce the previous directive. More specifically, it argues for:

Full public access to the beneficial ownership registers of companies and business-

related trusts of Member States.

Direct interconnection of the registers to facilitate cooperation between Member

States.

Extending the information available to authorities to existing, as well as new,

accounts for due diligence controls. It is hoped that this measure will prevent

accounts that are potentially used for illicit activities from escaping detection.

64 The results are not yet available. See European Parliament, Answer given by Mr Moscovici on

behalf of the Commission, parliamentary questions, E-007427/2016, 1 December 2016.

65 Action Plan to Combat Organised Crime (Adopted by the Council on 28 April 1997), Official Journal

C 251, 15 August 1997, p. 6.

66 Directive (EU) 2015/849 of 20 May 2015, Official Journal L 141, 5 June 2015, pp. 73‐117.

67 European Commission, Communication from the Commission to the European Parliament and the

Council on an Action Plan for Strengthening the Fight Against Terrorist Financing, COM/2016/050 final,

Strasbourg, 2 February 2016.

http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2016-007427&language=EN

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A51997XG0815


http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1455113825366&uri=CELEX:52016DC0050

http://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1455113825366&uri=CELEX:52016DC0050



PE 593.803 33

Passive companies and trusts, such as those highlighted in the Panama Papers, will

also be subject to greater scrutiny and tighter rules.

Overall, this revised AML proposal concentrates on facets of tax transparency that could

help tackle tax evasion in those OCTs that are under tight control of the EU Member States.

The above-mentioned measures aim, among other things, to stop financial transactions

escaping Member States and being hidden in offshore tax havens, including the OCTs. As

Collovà argues, however, it is unclear whether the impacts of the European Commission’s

fifth AML proposal ‘could differ according to whether entities are based in a third country – either

in Europe (Switzerland, Monaco) or elsewhere; in Overseas Countries and Territories of a Member

State (such as the British Virgin Islands, the Cayman Islands and Anguilla); in the UK Crown

Dependencies (Isle of Man, Guernsey and Jersey) – or in a Member State’.68

7.2. EU influence on the OCTs

The influence of EU law on taxation was already the subject of an in-depth analysis

prepared for the TAXE 2 Committee, in June 2016.69 In view of Article 355 TFEU, the direct

application of EU law to the OCTs is limited to the association regime of Part IV TFEU and

the Overseas Association Decision (OAD) – currently in its eighth version, as adopted by

Council Decision 2013/755 on 25 November 2013.70 Thus, the material EU rules, such as

those on the internal market and state aid, do not apply.

Nevertheless, as demonstrated in the annexed contribution on the case study of the

Kingdom of the Netherlands (chapter III of Annex II), the recent OAD has equipped the

EU not only with soft tools but also with hard instruments. It foresees, for example, that

the European Commission has the power to withdraw or reduce financial aid to the OCTs.

In this way, the EU is given some leverage (i.e. impact) on the OCTs on issues related to

money laundering and tax evasion.

7.2.1. Obligations of the OCTs under the Overseas Association

Decision

It is important to note that the Overseas Association Decision (OAD) also covers financial

services, with a rationale explained in point 31 of its preamble:

‘Cooperation in the area of financial services between the Union and OCTs should contribute to

building a safer, sounder, more transparent financial system that is essential to enhance global

financial stability and to underpin sustainable growth. Efforts in that area should focus on

convergence with internationally agreed standards and approximation of OCTs legislation with EU

68 Claudio Collovà, Prevention of the Use of the Financial System for the Purposes of Money Laundering or

Terrorist Financing, Initial appraisal of a European Commission impact assessment, PE 587.354,

European Parliamentary Research Service, European Parliament, Brussels, October 2016, p. 7.


Crown Dependencies, PE 578.989, Department A: Economic and Scientific Policy, Directorate General

for Internal Policies, European Parliament, Brussels, June 2016.

70 Official Journal L 344, 19 December 2013, p. 1.

http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/587354/EPRS_BRI(2016)587354_EN.pdf





PE 593.803 34

acquis communautaire on financial services. Adequate attention should be paid to strengthening

administrative capacity of OCTs authorities, including in the area of supervision’.71

The relevant articles (Articles 70-73) of the OAD provide for cooperation on international

financial services, between regulatory and supervisory authorities, as well as on taxation

matters. With regard to regulatory alignment, it is stated that ‘the Union and the OCTs may

make efforts to promote greater alignment of OCTs legislation with Union Legislation on financial

services’ (Article 71 OAD). The in-depth analysis mentioned above also proposed that

Member States voluntarily commit to ensure that their OCTs do not become tax havens.72

However, since this article actually reads ‘when it is appropriate to do so, or at the request of

the OCTs concerned, the Union and the OCTs may make efforts…’, the experts who drafted the

case study on the case on the Kingdom of the Netherlands argue that it is up to the Council

to clarify when it seems appropriate to promote greater legislative alignment between the

EU and OCTs, since the OAD is a Council decision.73

7.2.2. Obligations under the Association of the Overseas

Countries and Territories of the European Union

The EU, OCTs and Member States have a shared interest in addressing jointly the

challenges and opportunities raised by globalisation and the need to support sustainable

development and cooperation strategies, as underlined in the 2011 OCT-Member States

joint position paper.74

An increasing number of European policies affect the interests of the OCTs. Political and

technical dialogue between EU policy-makers and the OCTs contributes to the EU-OCT

relationship. The OAD provides for a broad-based dialogue to enable the EU, all the OCTs

and the Member States to which they are linked, to consult each other on the principles,

detailed procedures and results of the association. This dialogue takes, inter alia, the form

of an OCT-EU forum for dialogue, referred to as ‘the Forum’, which meets annually to

bring together OCT authorities, representatives of the Member States and the European

Commission. 75

The ‘partnership working parties’ (PWP), set up under the former OAD, are part of the

policy dialogue mechanisms foreseen under article 13 of the new OAD that came into force

71 Official Journal L 344, 19 December 2013, p. 1.



General for Internal Policies, European Parliament, June 2016, p. 24.

73 Annex II, p. II-108.

74 Joint Position Paper of the Governments of the Kingdom of Denmark, the French Republic, the Kingdom of

the Netherlands, the United Kingdom of Great Britain and Northern Ireland, and the Overseas Countries and

Territories on the Future of Relations between the Overseas Countries and Territories and the European Union,

Noumea, 28 February 2011.

75 See the website of the Association of the Overseas Countries and Territories of the European Union,

not dated.



http://www.octassociation.org/IMG/pdf/joint_position_280211.pdf



http://www.octassociation.org/political-dialogue-eu-oct-ms



PE 593.803 35

on 1 January 2014. Their strength has been that they allow the participation and

engagement of all relevant stakeholders, including from the OCTs.

The PWP on financial services is a forum for discussions on new legislation on taxation

and money laundering that brings together OCT financial services experts, EU-based

representatives of OCTs, staff of the technical assistance team of the Association of the

Overseas Countries and Territories of the European Union (OCTA), and representatives of

the Commission (DG Market, DG TAXUD and the Task Force OCT), as well as overseas

financial services experts (e.g. from Anguilla, BVI, and Greenland).

For instance, more concretely, at their meeting of 22 January 2014, the financial services

PWP informed the OCTs of the significant changes that would be brought to the EU’s AML

Directive. Participants also examined the European Commission’s proposal for a new

Savings Directive and the EU ‘action plan to strengthen the fight against tax fraud and tax

evasion’.76 It was also underlined that OCTs can influence the decision-making process on

the directive through their Member States who are represented in the Council. There was

also a discussion on setting up a consultation mechanism between the OCTs and the

European Commission services at expert level with the objective of furthering cooperation

and exchange in the field of financial services.77

7.3. Openings for a more pro-active EU

Arguably, the new OAD includes specific provisions for cooperation in financial services,

which stipulate that they will only take place if the OCT so wishes. In that framework, it is

difficult for the EU to expect the OCTs to comply with the Decision beyond the FATF

recommendations.

Nevertheless, the new OAD, through its Article 90(1), confers on the European

Commission the power to withdraw or reduce financial aid to the OCTs, a leverage that

could be used to encourage OCTs to combat money laundering and tax evasion and

enhance tax transparency more effectively. The primary responsibility for the financial

supervision of EU funds lies with the OCTs. In that sense, as explained by the experts who

drafted the case study on the Netherlands, ‘these developments in EU overseas law demonstrate

a move away from the traditional paradigm of the relationship between the EU and OCTs based on

one-sided classic development and aid cooperation towards a more reciprocal partnership between

the two parties’.78

As part of the EU package to combat tax avoidance, the first steps were taken towards

producing a list of non-cooperative tax jurisdictions, to be completed by the end of 2017.

At its meeting of 8 November 2016, the European Council (of Finance Ministers) agreed on

76 European Commission, An Action Plan to Strengthen the Fight Against Tax Fraud and Tax Evasion,

Communication from the Commission to the European Parliament and the Council {SWD(2012) 403 final}

{SWD(2012) 404 final}, COM(2012) 722 final, Brussels, 6 December 2012.

77 Association of the Overseas Countries and Territories of the European Union, Working Party

Meeting on Financial Services, 8 May 2014.

78 Annex II, p. II-112.

https://ec.europa.eu/taxation_customs/sites/taxation/files/com_2012_722_en.pdf



http://www.octassociation.org/working-party-meeting-on-financial-services



PE 593.803 36

the criteria for the upcoming ‘blacklist’ of non-cooperative tax jurisdictions. The blacklist

was drawn up as a ‘scoreboard’ of third country jurisdictions (including OCTs linked to

EU Member States) and were assessed by neutral indicators: their economic ties with the

European Union, their financial activity and stability factors. They were then attributed

risk factors, such as their level of transparency and potential use of preferential tax

regimes.79 Of the ten jurisdictions flagged on the scorecard for their low tax rate, four are

UK OCTs, namely Anguilla, Bermuda, the British Virgin Islands, and the Cayman Islands.

Discussions are under way as to sanctions that the EU could impose on countries included

in the final list. Options being discussed include the introduction of additional taxes,

known as ‘withholding taxes’, or the removal of tax deductions.80

Furthermore, the experts who drafted the contribution on the OCTs of the Netherlands

demonstrate that the case law of the CJEU has progressively expanded the potential

applicability of EU law to the OCTs to include other parts of the Treaty. More specifically,

they showed that Article 276 TFEU on preliminary rulings is applicable to the OCTs and

that the rights conferred on EU citizens under Part II of the TFEU also apply to OCT citizens

who have the nationality of one of the Member States. (See chapter III of Annex II.)

8. Conclusions: the way forward

The EU Treaties do not contain specific legal obligations for the Member States to ensure

the application of the relevant EU law in their OCTs, but their political responsibility is

present in all four cases (Denmark, France, the Netherlands and the UK).

The history of these countries and territories has resulted in different levels of actual

dependence, with some OCTs enjoying large regulatory freedom (used in some cases to

create conditions that have allowed the growth of offshore financial services), and others

remaining under the tighter control of European capitals. In the case of the former

– especially the UK OCTs that focus their economic activities in specific sectors of the

financial markets – certain international standards were introduced in recent years, also as

a result of pressure from their sovereign Member States. Still, numerous legislative gaps,

as well as limitations due to economic considerations and the challenges of practical

implementation, are issues of concern.

Although some of the EU overseas countries and territories constitute offshore financial

centres, the OCT category is not per se a sufficient condition for such activities, and thus for

the increased risk of tax evasion and/or money laundering. The growth of the financial

services sector in those OCTs that appear in the Panama Papers and that have been named

79 European Commission, Common EU List of Third Country Jurisdictions for Tax Purposes, DG

Taxation and Customs Union, Brussels, 6 April 2017.

80 Simon Bowers, UK Overseas Territories Could Be Affected by EU Tax Crackdown, The Guardian,

15 September 2016.

https://ec.europa.eu/taxation_customs/tax-common-eu-list_en

https://www.theguardian.com/world/2016/sep/15/uk-overseas-territories-eu-tax-crackdown-economic-sanctions



PE 593.803 37

in other publications on offshore practices,81 was largely due to low (or non-existent)

corporate income taxation, significant levels of secrecy with regard to the ownership of

companies and/or bank accounts, and the ease with which funds can be transferred

regardless of their origin.

In the annexed contribution on the OCTs of the Kingdom of the Netherlands, it is suggested

that the EU as a whole should use the opportunity of its direct relations with those

countries and territories (especially the OAD framework), to pressure those OCTs that do

not respect international standards of tax cooperation and transparency to do so. This

could be particularly important in the case of the Caribbean countries of the Kingdom of

the Netherlands, where the Kingdom itself has limited possibilities to intervene. That risk

would of course be much lower, if other countries concerned (fully independent from the

EU Member States as such) did not offer tax haven opportunities to businesses and

individuals worldwide. By extension, the EU could use the same methods with regard to

Greenland through the separate agreements that the EU has signed with it.

In the annexed contribution on the French OCTs, the case is made that France could be a

model for the OCTs of other Member States. The French OCTs are not fully autonomous

yet enjoy a decentralised governance system, and therefore EU directives and European

and international standards should apply. In that respect, the Country of the Netherlands

could play a major role in ensuring the effective implementation and enforcement of the

relevant legislation in the Caribbean territories (Bonaire, Sint Eustatius/Statia and Saba),

which are its constituent parts.

Other frequently proposed solutions include the establishment of an international register

of the beneficiaries of shell companies and more systematic sharing of national lists. The

need to automatically expand the agreement to exchange tax information, which is set to

be introduced in 2017, to as many countries as possible beyond the approximately 100

states that have agreed to participate, has also been stressed. Any country, within or

outside the EU, refusing to share information, would face being put on a blacklist. What is

important is to have global solutions to the global problem of tax havens. Merely

controlling the flow of investment and money to the EU’s OCTs would be equivalent to

simply shifting the problem elsewhere. Tax evaders and money launderers would find

new methods and offshore havens located in wealthy countries, such as certain US states82

and EU Member States,83 to benefit from such a situation.

81 See, for example, Esmé Berkhout, Tax Battles - The Dangerous Global Race to the Bottom on Corporate

Tax, Oxfam, December 2016.

82 See, for example, Isabelle Ioannides, EU-US Trade and Investment Relations: Effects on Tax Evasion,

Money Laundering and Tax Transparency, Ex-Post Impact Assessment, PE 598.602, European

Parliamentary Research Service, European Parliament, Brussels, March 2017.

83 See, for example, Brigitte Unger, Offshore Activities and Money Laundering: Recent Findings and

Challenges, PE 595.371, Policy Department A: Economic and Scientific Policy, Directorate General for

Internal Policies, European Parliament, Brussels, March 2017, p. 22. Also see, Manon Aubry and

Thomas Dauphin, Opening the Vaults: The Use of Tax Havens by Europe’s Biggest Banks, Oxfam

International, 27 March 2017.

https://www.oxfam.org/en/research/tax-battles-dangerous-global-race-bottom-corporate-tax


http://www.europarl.europa.eu/RegData/etudes/IDAN/2017/598602/EPRS_IDA(2017)598602_EN.pdf


http://www.europarl.europa.eu/RegData/etudes/STUD/2017/595371/IPOL_STU%282017%29595371_EN.pdf


https://www.oxfam.org/sites/www.oxfam.org/files/bp-opening-vaults-banks-tax-havens-270317-en.pdf


PE 593.803 38

9. References

9.1. EU legal documents

Acts of Accession of Denmark, Ireland and the United Kingdom, Official Journal L 73, 1972.

Action Plan to Combat Organised Crime, Official Journal C 251, 15 August 1997.

Council Decision 2014/137/EU of 14 March 2014 on relations between the European Union on the


2014.

Council Directive 2014/107/EU of 9 December 2014 amending Directive 2011/16/EU as regards

mandatory automatic exchange of information in the field of taxation, Official Journal L 359, 16

December 2014, pp. 1-29.

Council Decision 2013/755/EU of 25 November 2013 on the association of the overseas countries and

territories with the European Union (‘Overseas Association Decision’), Official Journal L 344, 19

December 2013.

Directive (EU) 2015/849 of 20 May 2015, Official Journal L 141, 5 June 2015, pp. 73‐117.

European Parliament decision of 8 June 2016 on setting up a Committee of Inquiry to investigate alleged

contraventions and maladministration in the application of Union law in relation to money laundering, tax

avoidance and tax evasion, its powers, numerical strength and term of office, P8_TA(2016)0253.

Joint Declaration by the European Union, on the one hand, and the Government of Greenland and the

Government of Denmark, on the other, on relations between the European Union and Greenland, Brussels, 19

March 2015.

Joint Position Paper of the Governments of the Kingdom of Denmark, the French Republic, the Kingdom of the

Netherlands, the United Kingdom of Great Britain and Northern Ireland, and the Overseas Countries and

Territories on the Future of Relations between the Overseas Countries and Territories and the European Union,

Noumea, 28 February 2011.

9.2. Other EU documents

Council of the European Union, Savings Taxation Directive Repealed, press release 796/15, Brussels, 10

November 2015.

European Commission, Public Country-By-Country Reporting / Corporate Tax Transparency,

Banking and Finance, 23 November 2016.

European Commission, Communication on Further Measures to Enhance Transparency and the Fight

against Tax Evasion and Avoidance, Communication from the Commission to the European Parliament and

the Council, COM(2016) 451 final, Strasbourg, 5 July 2006.

European Commission, Combatting Corporate Tax Avoidance: Commission Presents Tax Transparency

Package, Press release, IP/15/4610, Brussels, 18 March 2015.

European Commission, An Action Plan to Strengthen the Fight Against Tax Fraud and Tax Evasion,

Communication from the Commission to the European Parliament and the Council {SWD(2012) 403 final}

{SWD(2012) 404 final}, COM(2012) 722 final Brussels, 6 December 2012.

European Parliament, Answer Giver by Mr Moscovici on behalf of the Commission, parliamentary

questions, E-007427/2016, 1 December 2016.

Programming Document for Sustainable Development of Greenland 2014-2020.

9.3. Government sources

Greenland, Act no. 473 Act on Greenland Self-Government, 12 June 2009.

UK House of Commons, Justice Committee - Eight Report of Session 2009-2010, London, 23 March 2010.

http://eur-lex.europa.eu/legal-content/GA/TXT/?uri=OJ%3AL%3A1972%3A073%3ATOC

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A51997XG0815





http://eur-lex.europa.eu/legal-content/EN/AUTO/?uri=uriserv:OJ.L_.2013.344.01.0001.01.ENG&toc=OJ:L:2013:344:TOC

http://eur-lex.europa.eu/legal-content/EN/AUTO/?uri=uriserv:OJ.L_.2013.344.01.0001.01.ENG&toc=OJ:L:2013:344:TOC


http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2016-0253+0+DOC+XML+V0//EN






http://www.consilium.europa.eu/en/press/press-releases/2015/11/10-savings-taxation-directive-repealed/

http://ec.europa.eu/finance/company-reporting/country-by-country-reporting/index_en.htm#cbcr-payments









http://www.europarl.europa.eu/sides/getAllAnswers.do?reference=E-2016-007427&language=EN

https://ec.europa.eu/europeaid/programming-document-sustainable-development-greenland-2014-2020_en

http://naalakkersuisut.gl/~/media/Nanoq/Files/Attached%20Files/Engelske-tekster/Act%20on%20Greenland.pdf

https://www.publications.parliament.uk/pa/cm200910/cmselect/cmjust/56/56i.pdf



PE 593.803 39

UK Secretary of State for the Home Department, Review of Financial Regulation in the Crown

Dependencies, London, 24 October 1998.

UK-Overseas Territories Joint Ministerial Council - 2016 Communique, London, 15 November 2016.

US Department of State, 2015 Denmark Investment Climate Statement, Washington, DC, June 2015.

9.4. Other international organisations

OECD, Standard for Automatic Exchange of Financial Account Information in Tax Matters, Paris, July 2014.

Eurostat and United Nations Office for Drugs and Crime (UNODC), Handbook on the Compilation of

Illegal Economic Activities Statistics in National Accounts and Balance of Payments (forthcoming).

OECD, Transfer Pricing Documentation and Country-by-Country Reporting, Action 13 - 2015 Final Report,

OECD/G20 Base Erosion and Profit Shifting Project 2015, Paris, 2015.

United Nations General Assembly, United Nations Convention against Transnational Organized Crime,

Resolution adopted by the General Assembly, Fifty-fifth session, A/RES/55/25, 10 November 2000.

9.5. Other documents

Arctic Cluster of Raw Materials (ACRM) in collaboration with Confederation of Danish Industry

(DI), Greenland Benchmarking Report 2016, February 2016.

Aubry, Manon and Thomas Dauphin, Opening the Vaults: The Use of Tax Havens by Europe’s Biggest

Banks, Oxfam International, 27 March 2017.

Berkhout, Esmé, Tax Battles - The Dangerous Global Race to the Bottom on Corporate Tax, Oxfam,

December 2016.

Berwick, Angus and Carolyn Cohn, Gibraltar Looks to Reinvent Itself after Brexit, Reuters, 23

September 2016

Blackhurst, Chris, Britain’s Island Tax Havens Need Action, The London Evening Standard, 2 December

2015.

Bowers, Simon, UK Overseas Territories Could Be Affected by EU Tax Crackdown, The Guardian, 15

September 2016.

Collovà, Claudio, Prevention of the Use of the Financial System for the Purposes of Money Laundering or

Terrorist Financing, Initial appraisal of a European Commission impact assessment, PE 587.354,

European Parliamentary Research Service, European Parliament, Brussels, October 2016.

da Cruz, Pedro, Shelter your Wealth in the Canary Islands, The Telegraph, 29 November 2011.

Foot, Michael, Final Report of the Independent Review of British Offshore Financial Centres, October 2009.

Greenland Coalition partners Siumut Inuit Ataqatigiit Partii Naleraq, Coalition Agreement 2016–

2018 - Equality, Security, Development, 27 October 2016.

Greenland in Figures 2016

Guersen, Wessel, Influence of EU Law on Taxation in the EU Member States’ Overseas Territories and


General for Internal Policies, European Parliament, Brussels, June 2016.

Hastings, Kirsten, No Change for Crown Dependencies’ Financial Services sectors, International

Advisor, 27 June 2016.

Houben, Robby, Mandate of the Panama Inquiry Committee, PE 587.327, Policy Department A: economic

and Scientific Policy, Directorate General for Internal Policies, Brussels, November 2016.

Ioannides, Isabelle, EU-US Trade and Investment Relations: Effects on Tax Evasion, Money Laundering and

Tax Transparency, Ex-Post Impact Assessment, PE 598.602, European Parliamentary Research Service,

European Parliament, Brussels, Brussels, March 2017.



https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/565228/Overseas_Territories_Joint_Ministerial_Council_2016_Communique.pdf


http://www.oecd.org/ctp/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-account-information-for-tax-matters-9789264216525-en.htm


http://www.un-documents.net/uncatoc.htm

http://acrm.dk/wp-content/uploads/2016/02/Greenland-Benchmarking-Report_WEB_FINAL.pdf




http://www.reuters.com/article/us-britain-eu-gibraltar-idUSKCN11T1AC

https://www.theguardian.com/world/2016/sep/15/uk-overseas-territories-eu-tax-crackdown-economic-sanctions



http://www.telegraph.co.uk/finance/personalfinance/expat-money/8920635/Shelter-your-wealth-in-the-Canary-islands.html

https://www.gov.im/media/624053/footreport.pdf



http://www.stat.gl/default.asp?lang=en




http://www.europarl.europa.eu/RegData/etudes/STUD/2016/587327/IPOL_STU(2016)587327_EN.pdf




PE 593.803 40

Ioannides, Isabelle, The Inclusion of Financial Services in EU Free Trade and Association Agreements:

Effects on Money Laundering, Tax Evasion and Avoidance, Ex-Post Impact Assessment, PE 579.326,

European Parliamentary Research Service, European Parliament, Brussels, June 2016.

Oxford Analytica, Caribbean Tax Haven Scrutiny Will Bring Little Reform, Oxford Analytica Daily

Briefing, 27 April 2016.

Scott, Dorothy, Sharing Financial Information: The Cayman Story Worth Telling, Mondaq Business

Briefing, 14 March 2017.

Secorun Palet, Laura, The Rise of Europe’s Unlikeliest Tax Haven, The Daily Dose, 30 September 2015.

Unger, Brigitte Offshore Activities and Money Laundering: Recent Findings and Challenges, PE 595.371,

Policy Department A: Economic and Scientific Policy, Directorate General for Internal Policies,

European Parliament, Brussels, March 2017.

Unger, Brigitte et al., The Economic and Legal Effectiveness of Anti-Money Laundering and Combatting

Terrorist Financing Policy, Final Report, ECOLEF Project, Project funded by DG Home Affairs,

European Commission, JLS/2009/ISEC/AG/087, Utrecht University, The Netherlands, February

2013.

9.6. Websites

Association of the Overseas Countries and Territories of the European Union.

Common EU List of Third Country Jurisdictions for Tax Purposes, DG Taxation and Customs Union

European Commission.

Gibraltaroffshore.

OECD BEPS programme.

OECD Global Forum on Transparency and Exchange of Information for Tax Purposes.

OECD’s Automatic Exchange Portal.

Offshorebanksdirectory.

UK overseas territories.

Working Party Meeting on Financial Services.



http://www.ozy.com/fast-forward/the-rise-of-europes-unlikeliest-tax-haven/60712




http://www.octassociation.org/political-dialogue-eu-oct-ms

https://ec.europa.eu/taxation_customs/tax-common-eu-list_en

http://www.gibraltaroffshore.com/index.htm

http://www.oecd.org/tax/beps/beps-about.htm#monitoring


http://www.oecd.org/tax/automatic-exchange/international-framework-for-the-crs/

http://www.offshorebanksdirectory.com/

https://www.gov.uk/government/policies/uk-overseas-territories




PE 593.803 I - 41

ANNEX I

In-depth analysis evaluating the legal, political and

institutional framework concerning offshore practices

related to tax evasion, money laundering and tax

transparency in the Overseas Countries and Territories

(OCT) of France, as defined in Annex II of the Treaty on the

Functioning of the European Union (TFEU), and the relations

of France with those OCTs


PE 593.803 I - 42

AUTHOR

This study has been written by Prof. Alexandre Maitrot de la Motte of the University

of Paris-Est Créteil, at the request of the Ex-Post Evaluation Unit of the Directorate for

Impact Assessment and European Added Value, within the Directorate General for

Parliamentary Research Services (DG EPRS) of the General Secretariat of the European

Parliament.

CONTACT

Université Paris-Est Créteil

61, avenue du Général de Gaulle

94010 Créteil Cedex

FRANCE

Office: + 33 (0)1 45 17 65 33

Mobile: +33 (0)7 63 66 03 15

[email protected]

RESPONSIBLE ADMINISTRATOR:

Dr Isabelle Ioannides, Ex-Post Evaluation Unit

To contact the Unit, please email: [email protected]

LINGUISTIC VERSIONS

Original: FR



Parliament as background material to assist them in their parliamentary work. The

content of the document is the sole responsibility of its author(s) and any opinions

expressed herein should not be taken to represent an official position of the Parliament.

Reproduction and translation for non-commercial purposes are authorised, provided

the source is acknowledged and the European Parliament is given prior notice and sent

a copy.

Manuscript completed in March 2017





PE 593.803 I - 43

Contents

Executive summary ................................................................................................................... I-45

1. Introduction ..................................................................................................................... I-46

1.1. Institutional presentation of French OCTs .................................................................. I-47

1.2. Economic and social presentation of the French OCTs ............................................. I-52

2. French OCTs and tax evasion ....................................................................................... I-54

2.1. The lack of reliable public data ..................................................................................... I-54

2.2. The factors favouring tax evasion through certain French OCTs ............................ I-56

2.2.1. The low level of direct taxes .......................................................................................... I-56

2.2.2. The lack of tax audits ..................................................................................................... I-60

2.3. The factors putting into perspective the risks of tax evasion through French

OCTs ................................................................................................................................. I-62

2.3.1. The tax regimes applicable to non-resident taxpayers in the French OCTs ........... I-62

2.3.2. The geographical distances and the difficulties of access ......................................... I-64

2.3.3. The low level of development of local economies and banking systems ............... I-65

2.4. Conclusion ....................................................................................................................... I-66

3. French OCTs and anti-money laundering................................................................... I-68

3.1. The indirect application of European anti-money laundering rules in the French

OCTs ................................................................................................................................. I-68

3.2. Critical examination of the effectiveness of the rules applicable within the French

OCTs ................................................................................................................................. I-71

3.2.1. The insufficiency of the reporting of suspicions and of the controls ....................... I-71

3.2.2. The lack of data on money laundering in the French OCTs ..................................... I-73

3.3. The need to put into perspective the risks of money-laundering via the French OCTs

........................................................................................................................................... I-74

3.3.1. Limited risks with respect to banking systems and feasible banking operations.. I-74

3.3.2. Money laundering practices necessarily low given the number of bank accounts

opened in the French OCTs and the amount of bank assets..................................... I-77

3.4. Conclusions ..................................................................................................................... I-83

4. French OCTs and tax transparency .............................................................................. I-85

4.1. A willingness to tax transparency respecting the highest standards ...................... I-85

4.2. The regrettable lack of data on the implementation of tax transparency in the French

OCTs ................................................................................................................................. I-87

4.3. An effective cooperation ................................................................................................ I-87

4.4. Conclusion ....................................................................................................................... I-88


PE 593.803 I - 44

5. Conclusions: Lessons learned on controlling tax evasion, countering money

laundering and ensuring transparency ....................................................................... I-89

6. Bibliography .................................................................................................................... I-90

6.1. Official texts ..................................................................................................................... I-90

6.2. Textbooks and articles .................................................................................................... I-90

6.3. Official reports ................................................................................................................ I-90

6.4. French Parliament ........................................................................................................... I-91

6.5. Online articles ................................................................................................................. I-91

List of Figures

Figure 1: Map of the French Overseas Territories ................................................................. I-47

Figure 2: Banking activity in French Polynesia ...................................................................... I-82

List of Tables

Table 1: Schematic institutional presentation of the French Overseas Countries and

Territories ................................................................................................................... I-51

Table 2: Main economic and social data for French OCTs ................................................... I-52

Table 3: Level of compulsory levies in the French OCTs (in millions of euros and in %)I-57

Table 4: Number of bank accounts in French Polynesia ....................................................... I-77

Table 5: Number of bank accounts per capita in French Polynesia .................................... I-78

Table 6: Number of bank accounts in New Caledonia ......................................................... I-79

Table 7: Number of bank accounts per capita in New Caledonia ....................................... I-79

Table 8: Number of bank accounts in Saint-Pierre-and-Miquelon ...................................... I-80

Table 9: Average deposit account balance in Saint-Pierre-and-Miquelon ......................... I-81



PE 593.803 I - 45

Executive summary

In the fight against international tax evasion and money laundering, and in tax

transparency, the regulations applicable in the French OCTs (St. Barthelemy, Saint-Pierre-

and-Miquelon, Wallis-and-Futuna Islands, French Polynesia, and the whole of the four

territorial authorities of New Caledonia) meet the standards of the European Union. The

examination of these regulations, but also of the manner in which they are implemented,

shows that, in the end, the French OCTs pose little risk for the other Member States of the

European Union.

With few exceptions, the tax burden of these OCTs is sufficiently heavy to ensure that

they are not considered to be tax havens. In addition, European anti-money laundering

rules have been largely implemented by French law. Finally, French law and conventions

between these OCTs and the French central state mean that administrative tax

cooperation (exchange of information) is organised in ways inspired by the best

international standards.

In a transverse way, it can be noted that the French OCTs are not totally autonomous and

have no sovereignty. These decentralised local authorities are relatively controlled by the

central state, which can depending on circumstances, grant them more or less autonomy.

In the areas covered by this study, such autonomy is relatively weak.

Moreover, neither the economic context nor the infrastructure favour tax evasion or

money laundering activities in the French OCTs. In particular, the banking sector is

insufficiently developed to allow local engagement in these reprehensible practices.

Given the administrative means used to implement the abovementioned legal framework

and the specificities of the OCTs concerned, there is of course room for progress.

Upstream, there is too little data available to assess the actual effectiveness of the

implementation of the regulation. Moreover the reliability of this data is not complete.

Consequently, the administrative services responsible for carrying out control operations

could benefit from more resources. This would allow for more controls and more data.

At the same time, local professionals could be more aware of risks.

Nevertheless, these negative aspects must be put into perspective. Given their economic,

social and geographical situations on the one hand, and the structures (in particular

banking) made available to citizens on the other, the French OCTs generally do not favour

the development of international fraud.

It follows that the French OCTs can serve as a model for the OCTs of the other Member

States. Without questioning the competences and the autonomy of the latter, it would

perhaps be appropriate that, as with the French OCTs, regulations similar to the

European regulations and standards should apply with regard to the fight against money

laundering and to administrative cooperation.


PE 593.803 I - 46

1. Introduction

This introduction will conduct an institutional presentation of the five French Overseas

Countries and Territories (hereafter ‘OCTs’), followed by an economic and social

presentation of the latter.

Two preliminary clarifications can already be made: they concern the identification of the

territories concerned and their status.

First clarification: identification of the five territories concerned. Under the law of the

European Union, the French OCTs are:

- St. Barthelemy,

- Saint-Pierre-and-Miquelon,

- Wallis-and-Futuna Islands,

- French Polynesia,

- and the group constituted by the four territories of New Caledonia (hereinafter

‘New Caledonia’).

These are territories belonging to two geographical zones which are very remote from one

another: the Pacific Ocean for New Caledonia, French Polynesia and the Wallis-and-

Futuna Islands; the American border of the Atlantic Ocean for St. Barthelemy and Saint-

Pierre-and-Miquelon. These territories are also characterised by their remoteness from

mainland France and the European continent: Saint-Pierre-and-Miquelon is 4,270 km from

Paris, St. Barthelemy is 6,800 km away, and French Polynesia and New Caledonia are

respectively 15,700 km and 16,700 km away.

Second clarification: French OCTs are decentralised local authorities (not sovereign),

not independent entities. For the rest of this study, it is important to note that, unlike other

OCTs, the French OCTs are not completely independent or even autonomous. And they

do not have sovereignty. They are only local authorities: like all French local authorities,

they are decentralised and exercise the powers that the state gives them (and can take over)

within the framework of a unitary state.

In addition to these OCTs (which correspond in French constitutional law to ‘Collectivités

d’Outre-Mer’ (‘overseas local authorities’): hereinafter ‘COM’), French overseas territories

are composed of overseas local authorities called ‘Départements d’Outre-Mer’ (hereinafter

‘DOM’ for ‘overseas departments’), that have been regionalised (hereinafter ‘ROM’ for

‘Régions d’Outre-Mer’: ‘overseas regions’). These include Guadeloupe, Martinique, Guyana,

La Réunion and Mayotte. To the extent that EU law applies, the DOMs and ROMs (which

are not OCTs in EU law) are excluded from the scope of this study. The same applies to the

local authorities that do not have a permanent population: Clipperton and the French

Southern and Antarctic Territories.

It should be noted that French constitutional and administrative laws employ the words

‘collectivité territoriale’ to designate these decentralised administrative communities.

According to the usages, they will hereinafter be called ‘local authorities’.



PE 593.803 I - 47

The French Overseas Territories as a whole, whether the OCTs covered by this study

(‘COM’ in French law) or other local authorities excluded from it (‘DOM’, ‘ROM’, and local

authorities without permanent population) can be located by means of the map below. This

shows their great geographical heterogeneity. The remainder of this study will show a

great legal, economic and social heterogeneity.

Figure 1: Map of the French Overseas Territories

1.1. Institutional presentation of French OCTs

French OCTs and European Union law. Annex II to the Treaty on the Functioning of the

European Union states that the fourth part of the Treaty applies to the OCTs, which it lists.

The French OCTs listed in the initial version of the Treaty are New Caledonia and its

dependencies, French Polynesia, French Southern and Antarctic Territories, Wallis-and-

Futuna Islands, Mayotte and Saint-Pierre-and-Miquelon.

Since then, St. Barthelemy has been added to this list and Mayotte has been withdrawn.

Indeed, following a decision of 29 October 2010 of the European Council, the local

authority of St. Barthelemy now falls under the status of the OCTs.84 For its part, since 2014

Mayotte is no longer an OCT, but rather an ultra-peripheral region. These changes of status

in European Union law were requested by France following changes in its internal order

(see the box below, entitled ‘Historical background’).

French OCTs and French constitutional law. This shows that there is coherence between

the European statute and the national status of French overseas local authorities. The local

authorities which have the status of an overseas ‘département’ (DOM) and ‘région’ (ROM)

84 See decision of the European Council on the basis of Article 355(6) TFEU; 2010/718/EU: European

Council Decision of 29 October 2010 amending the status with regard to the European Union of the

island of St. Barthelemy (Official Journal 2010, L325/4).


PE 593.803 I - 48

under French law are, under Union law, ultra-peripheral regions. And the local authorities

which have under French law the status of ‘Collectivité d’Outre-Mer’ (COM) are, with the

exception of Saint-Martin, OCTs in Union law.85

Historical background

The distinction made by French law between the DOMs and the ROMs on the one hand,

and the COMs on the other, is the result of historical considerations. It should be noted that

from 1946 onwards, French overseas law ceased to govern colonies. Unlike other states, the

French model of colonisation that existed before 1946 was based on an application in the

colonies of the French administrative model and on the exclusive use of French agents for

the higher local functions.

In 1946, each former colony was governed by one of the following two statuses, depending

on whether it had acceded to independence:

- Under the 1946 Constitution, states under protectorate and new states born of the

decolonisation movement were able to join the ‘French Union’, with the status of a state

(first status);

- For their part, territories which had not attained independence have become overseas

local authorities (second status) protected by the constitutional principle of the free

administration of local authorities. These local authorities had themselves been divided

into two categories:

1° The overseas ‘départements’ (‘DOM’) envisaged by Article 73 of the 1946 Constitution,

which were been created by a law of 19 March 1946 applying to the four old colonies of the

seventeenth century (Guadeloupe - then including St. Barthelemy and Saint-Martin -,

Martinique, French Guiana and Reunion) ;

2° The overseas territories (‘TOM’) envisaged by Article 74 of this Constitution, that

included the former colonies of Saint-Pierre-and-Miquelon, Africa, Madagascar and

Oceania.

This general scheme (two statutes corresponding to the association with the outside and

the decentralisation in the interior) was then taken up by the Constitution of the Fifth

Republic (1958). Under the principle of the free determination of peoples, each overseas

territory (excluding the French Southern and Antarctic Territories, lacking a permanent

population) benefited in 1958 from a double possibility allowing them:

- either to become independent and then to have a secondary option: to remain (twelve

TOMs from Black Africa and Madagascar made this choice) or not to remain (Guinea made

this choice) in the French Community which no longer exist today;

85 Saint-Martin has long been a subdivision dependent on the overseas department of Guadeloupe.

It was separated in 2007 and became a ‘Collectivité d’Outre-Mer’ under French law. In Union law, it

has remained an ultra-peripheral region.



PE 593.803 I - 49

- or to remain within the French Republic as a local authority with a secondary option: to

remain an overseas territory (TOM) or to become an overseas department (DOM). Five

TOMs decided to remain within the French Republic, retaining their status as TOM: Saint-

Pierre-and-Miquelon, French Somaliland, Comoros, French Polynesia and New Caledonia.

In accordance with Article 53, paragraph 3, of the 1958 Constitution, some of these local

authorities were subsequently able to achieve independence, as was the case in the three

northern islands of the Comoros archipelago in 1975 and in the French territory Afars and

Issas (formerly French Somali Coast) in 1977.

The decentralisation laws of 1982 then complicated the French administrative organisation,

since they created overseas regions (hereinafter ‘ROM’ for ‘Régions d’Outre-Mer’) which

manage the same territories as the French overseas departments, but with separate

institutions that are somewhat superimposed. In terms of general organisation, these laws

did not, however, upset the organisation of the ‘TOM’.

Changes in status are of course possible, and result in requests for change of European

status. As a result:

1. Until 2007, St. Barthelemy was a commune and a district of Guadeloupe, which is an

overseas department (DOM). Guadeloupe and St. Barthelemy were then separated:

Guadeloupe remained a French DOM under internal law and retained its status as an ultra-

peripheral region in European Union law; St. Barthelemy has become a COM in domestic

law, and has acceded to the status of OCT in European Union law.

2. Mayotte (a group of islands in the Comoros archipelago) became French in 1841. With

the rest of Grande Comore, Mohéli and Anjouan, it took the form of a protectorate in 1886,

and of a ‘TOM’ at the end of the Second World War. In 1974, France organised a

referendum in the whole of the Comoros archipelago to decide on possible independence:

unlike the other parts of the Comoros territory, the population of Mayotte voted to be

maintained within the French Republic. A second referendum organised only in Mayotte

in 1976 then confirmed this choice, so that Mayotte remained a ‘TOM’. Following the local

referendum in 2009, Mayotte then became a department and an overseas region (DOM and

ROM) with a single deliberative assembly. Consecutively, Mayotte changed its European

status, becoming an ultra-peripheral region in 2014.

The French OCTs vis-à-vis the other categories of French overseas local authorities:

aspects of governance. The constitutional law of 28 March 2003 and that of 23 July 2008

modified the rules applying to the French territorial authorities resulting from this history.

This being so, it is important to note that notwithstanding the changes that have taken

place, French law is still governed by a logic of decentralisation: the French state remains

a unitary state which has transferred powers and financial resources to non-sovereign local

authorities.

In the case of overseas territories, these constitutional laws have on the one hand allowed

for the French DOMs and ROMs to evolve towards the status of a single local authority


PE 593.803 I - 50

intended to take the place of the department and the region.86 And they have on the other

hand transformed the ‘TOM’ into ‘overseas local authorities’ (‘COMs’, for ‘Collectivités

d’Outre-Mer’), enabling them to become DOMs. It follows that in the current state of

French constitutional law, there are now three categories of French overseas local

authorities:87

1 The first category comprises five overseas territorial authorities, both departments

and regions, which are decentralised and subject to the principle of legislative and

regulatory assimilation (the principle that metropolitan laws and regulations,

which necessarily respect European law, apply). Governed by Article 73 of the

Constitution, these are, on the one hand, former colonies historically endowed

with the status of overseas departments (Guadeloupe and Reunion, which are still

DOMs with ROMs, and Martinique and Guyana, which became single local

authorities in 2015) and Mayotte, which, following the local consultation organised

on 29 March 2009, has become an overseas department with, moreover, regional

powers.

2 The second category comprises five other decentralised local authorities, which are

referred to as COMs by Article 74 of the Constitution, the first subparagraph of

which provides that they have ‘a statute which takes into account the interests of

each of them within the Republic’. These are former TOMs (Saint-Pierre-and-

Miquelon, the Wallis-and-Futuna Islands and French Polynesia), but also former

subdivisions of DOMs (Saint-Martin and St. Barthelemy). Beyond their former

status, these authorities are not homogeneous and can only be defined in domestic

law in a strictly negative way: they are the overseas territorial authorities which

are not departmentalised or regionalised (see supra 1) and which are outside

Caledonian territory (see infra 3). The fact that the first paragraph of Article 74 of

the Constitution mentions ‘each of them’ shows the lack of homogeneity of these

different authorities. As the following institutional summary shows, while some

of these local authorities are subject to the principle of legislative assimilation,

others practise the principle of legislative specialisation (the principle that

metropolitan laws are locally applicable only if, after consultation of the territorial

assemblies, they expressly decide it).

3 Finally, the third category consists of the four territorial authorities of New

Caledonia (New Caledonia proper and the three Caledonian provinces: North,

86 See new Articles 72(4) and 73 para. 7 of the French Constitution. 87 Article 72(3) of the French Constitution, as drafted and in force since the adoption of Article 37 of

Constitutional Law No 2008-724 of 23 July 2008, provides that :

‘The Republic recognises, among the French people, the populations of overseas, in a common ideal of freedom,

equality and fraternity.

Guadeloupe, Martinique, Réunion, Mayotte, St. Barthelemy, Saint-Martin, Saint-Pierre-and-Miquelon, the

Wallis-and-Futuna Islands and French Polynesia are governed by article 73 for the departments and the regions

and the local authorities established pursuant to the last paragraph of section 73, and by section 74 for the other

local authorities.

The status of New Caledonia is governed by Title XIII.

The law determines the legislative scheme and the particular organisation of the French Southern and Antarctic

Territories and Clipperton’.

https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=LEGITEXT000006071194




PE 593.803 I - 51

South and Loyalty Islands). They are also decentralised and governed by a

transitional and specific constitutional arrangement. Their legal framework is

covered by a special title in the Constitution (Title XIII, which is composed of

Articles 76 and 77). They may adopt local laws (called ‘lois de pays’) subject to the

control of the Constitutional Council. As it stands, the constitutional system

applying to it has broad similarities with the status of the five local authorities

mentioned above under 2.

Institutional summary. A presentation of this complex constitutional and political

situation is set out in the summary table below:88

Table 1: Schematic institutional presentation of the French Overseas Countries and Territories

DOM ROM SA COM Other UPR OCT

Guadeloupe C C C

Martinique C C

Guyana C C

Reunion C C C

Mayotte C C C

St. Barthelemy C/as.

C

Saint-Martin C/as.

C

Saint-Pierre-

and-Miquelon

C/as.

C

Wallis-and-

Futuna

C/sp.

C

French

Polynesia

C/sp.

C

New Caledonia C/sp. C

Legend: DOM : Département d’Outre-Mer ; ROM : Région d’Outre-Mer ; SC : Single Authority; COM :

Collectivité d’Outre-Mer ; UPR : Ultra-Peripheral Region; OCT : Overseas Country or Territory ; C :

current ; as.: legislative assimilation ; sp. : legislative specialisation.

88 Update of the table presented in Olivier Gohin, Michel Degoffe, Alexandre Maitrot de la Motte and

Charles-André Dubreuil, Droit des collectivités territoriales, Editions Cujas, 2nd edition, 2015, p. 272.


PE 593.803 I - 52

1.2. Economic and social presentation of the French OCTs

Heterogeneity of the economic and social situation. It has already been stated that the

French OCTs are relatively far from metropolitan France (between 4,270 km and 16,700 km

away).

It is important to note the remoteness of their most important economic partners.

‘Moreover, for reasons related to their geography as much as to their particular history

with metropolitan France, they have difficulties for some to fit into international or even

regional trade flows. In particular, their participation in regional structures aims to

alleviate these difficulties. These (…) overseas local authorities and New Caledonia do not

form a homogeneous whole. They correspond in fact to very different realities, be it in

demographic, geographical, economic or social terms’.89

To be convinced, it is sufficient to refer to the table below. The latter highlights the diversity

and complexity of the studied territories.

Table 2: Main economic and social data for French OCTs

Territory Population Size GDP GDP per

capita

Unemploy

-ment rate

Key economic

sectors

French

budgetary

aid

St. Barthelemy

9 131 (2012)

24 km² €319

million (2010)

€35 700 (2010)

4.3 %

Tourism; Buildings and Public Works; Non-financial market sector; trade

€2 million

Saint-Pierre-and-Miquelon

6 081 242 km²

€172 million

€28 327 8.7 %

Public Administra-tions and Merchant services

€77 million

Wallis-and-Futuna

12 200 142 km²

€150 million

€10 100 8.8 %

Agriculture; Non Merchant services (education, Health and public services); trade

€106 million

89 Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013, p. 14.

http://www.ccomptes.fr/Publications/Publications/L-autonomie-fiscale-en-outre-mer



PE 593.803 I - 53

Territory Population Size GDP GDP per

capita

Unemploy

-ment rate

Key economic

sectors

French

budgetary

aid

French Polynesia

271 800 4 167k

m²

€4 346 billion (2012)

€16 000 (2012)

21.8 % Services; Tourism.

€1 192 million

New Caledonia

268 000 18 576

km²

€7 105 billion (2010)

€28 931 (2010)

13.85 % (2009)

Mining activities (nickel); trade; construction; tourism

€1 217 million

Source: Data published in the 2015 reports of Institut d’Emission d’Outre-Mer

It is in this context that the risks posed by the French OCTs to the European Union and its

Member States in relation to tax evasion, money laundering and lack of fiscal transparency

can be analysed. It appears that they are extremely variable from one OCT to another.

This is due to the diversity of these OCTs, in terms of institutions, geographical location,

demography, natural assets and natural weaknesses, economic and financial conditions,

financial, administrative and tax systems, infrastructure, quality of their administrations,

etc.

This diversity will necessarily be taken into account at each stage of the present study, in

order to avoid falling into inaccurate generalisations.

http://www.ieom.fr/ieom/


PE 593.803 I - 54

2. French OCTs and tax evasion

Summary and plan. Despite the weakness of the available data and their unreliability

(2.1.), it is possible to say that French OCTs can hardly be used by European taxpayers

implementing tax evasion strategies (that is, strategies for escaping taxes by dissimulating

their income or wealth).

In certain OCTs there are several factors which are however likely to favour this avoidance:

the weakness of direct taxes and the relative absence of tax audits can be pointed out in

this respect (2.2.).

But in any case, French OCTs are by no means the most attractive for taxpayers who wish

to avoid tax by dissimulating their income or wealth. Whatever the French OCT concerned,

non-residents remain subject to the taxes due in their country of residence, and may even

be subject to double taxation; the French OCTs are often far from their countries of

residence; and it is rare for the local economy and local banking systems to reach the level

of development necessary to make the French OCTs attractive for tax evasion purposes

(2.3.).

2.1. The lack of reliable public data

Insufficient data. Upstream of the question of whether there is significant international tax

evasion via the French OCTs, it is important to underline the difficulty for local

administrations to produce reliable data. In a report which it devoted to overseas tax

autonomy in 2013, the French National Audit Office noted that ‘The production of the

statistical data required for a relevant tax policy is late and incomplete, in particular as

regards GDP or the level of compulsory levies'.90 It then added that ‘the results of tax

administrations in terms of efficiency and effectiveness are mixed and could all be

significantly improved. In this respect, only New Caledonia has put in place performance

indicators for its tax activity’.91

Awareness of this inadequacy. The fact that the National Audit Office has alerted the

public authorities to this point and has officially advocated strengthening the quality of

local production of economic and fiscal statistics, in particular in terms of the deadline for

making them available, suggests further improvements. Hopefully it will soon be

inaccurate to write that ‘many problems, always in close connection with a relative lack of

means, have been noted. The identified disruptions range from simple technical

dysfunctions to more serious deviations with regard to equity and the fundamentals of

taxation’.92

Lack of a real reaction from the French authorities. However, these improvements are

slow to be made. In a referral by the first President of the National Audit Office dated 16









PE 593.803 I - 55

February 2017, the persistence, at the central level, of administrative and supervisory

defects in overseas policies (which do not exclusively concern tax policy) has thus been

underlined.93

Resulting methodological difficulties. The author of this report notes that the collection

of data on the application of tax law in the French OCTs was extremely difficult. While the

tax departments of each local authority have a website94 where it is easy to find the

applicable (often codified) regulations, the declarative obligations and the corresponding

forms or procedures, as well as information on the general administrative organisation

(names and powers of the services), the latter never indicate the number of agents and their

distribution in the services, the number of tax audits carried out or the results of these

audits.

Similarly, data on the OCTs are never included in the documents published by the central

administrations. Neither the annual statistical yearbooks published by the Directorate-

General for Public Finance95 nor the Tax Atlas of France96 posted by the same Directorate

contain data specific to OCTs. Although these documents contain a great deal of reliable

and well-presented information, they combine the overseas data with the metropolitan

data.

And if one should expect to find data in the reports published annually by the Institut

d’Emission d’Outre-Mer, it must be noted that these reports, although very rich, contain no

data on taxation in the OCTs.97 In particular, no information can be found for the purpose

of determining the number of tax officers, their assignments or the results obtained.

Similarly, the Ministry of Overseas does not publish any data on these points.

Therefore, the main source available remains the report entitled ‘L’autonomie fiscale en

Outre-Mer’ (‘Overseas tax autonomy’), which was published in November 2013 by the

French National Audit Office (Cour des comptes)98 with the support of the Regional and

Territorial Audit Offices. In view of the means and prerogatives available to the National

Audit Office, the methods it traditionally uses, its independence and its seriousness, the

data contained therein are reliable and relevant, even if the Office has stated that it had

93 Cour des comptes, Référé du premier président, 16 February 2017.

94 This is the case for the following OCTs:

- New Caledonia ;

- French Polynesia ;

- Wallis-and-Futuna ;

- and Saint-Pierre-and-Miquelon.

- St. Barthelemy does not have a website specific to tax matters. These are nevertheless

addressed on the general website of this OCT.

95 These yearbooks are available online.

96 This atlas is available online.

97 Those reports are available online.

98 Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013.

http://www.ccomptes.fr/Accueil/Publications/Publications/L-administration-centrale-du-ministere-des-Outre-mer

https://dsf.gouv.nc/reglementation/code-des-impots-de-la-nouvelle-caledonie

http://www.impot-polynesie.gov.pf/code-des-impots-jour-de-la-derniere-modification-legislative-ou-reglementaire-entree-en-vigueur

http://www.wallis-et-futuna.pref.gouv.fr/Services-de-l-Etat-et-du-Territoire/Les-autres-services-de-l-Etat-et-du-Territoire/Direction-des-Finances-Publiques

http://www.services-fiscaux975.fr/

http://www.comstbarth.fr/formulaires_collectivite.aspx

https://www.data.gouv.fr/fr/datasets/annuaire-statistique/

https://www.impots.gouv.fr/portail/files/media/stats/atlas_fiscal_fichedescriptive_6645.pdf




PE 593.803 I - 56

sometimes been difficult to obtain them or to obtain recent data. In these circumstances, it

is regrettable that since then, only the Territorial Audit Office of French Polynesia has

published a report containing relevant data on the taxation of this OCT.99 For their part,

the other regional or territorial offices have not published any report making it possible to

ascertain the tax reality of the territories concerned.100

2.2. The factors favouring tax evasion through certain French OCTs

Weakness of direct taxes and effectiveness of tax audits. In the French OCTs, two factors

are likely to favour international tax evasion: the low level of direct taxes and the relative

lack of fiscal controls.

2.2.1. The low level of direct taxes

General level of tax pressure in the French OCTs. The tax burden of the French OCTs is,

on the whole, not very far from that which can be seen in the least taxed Member States of

the European Union.

In a recent report, the French National Audit Office, in the light of the available local

statistics, published data which are given in the table below.101 Given the lack of significant

tax reform and the economic stability since its publication,102 these data remain relevant to

ascertain the tax burden on taxpayers in the French OCTs.

99 Chambre territoriale des comptes de Polynésie française, Rapport d’observations définitives –

Collectivité de la Polynésie française – Gestion budgétaire et financière – exercices 2011 et suivants, 23

November 2015.

100 The reports published by the Territorial Audit Office of New Caledonia concern only the

municipalities of this territory and do not apprehend tax evasion, which is not at stake for them. See

https://www.ccomptes.fr/Publications/Recherche-avancee/(offset)/50/(limit)/10/(sort)/

attr_date_filter_dt;desc/(filters)/root-juridiction_s:Nouvelle-Calédonie. For its part, the Regional

and Territorial Audit Office in St. Barthelemy has a relatively low level of activity in this area since

only one report (which does not address the issue of tax evasion) can be reported : See Rapport

d'activité 2015 des chambres régionales et territoriales des comptes des Antilles et de la Guyane. Finally, no

report from the Territorial Audit Office of Saint-Pierre-and-Miquelon concerns taxation. See

https://www.ccomptes.fr/

Publications/Recherche-avancee/(limit)/10/(sort)/attr_date_filter_dt;desc/(filters)/root-

juridiction_s:Saint-Pierre%20et%20Miquelon).


102 In this sense, see the reports published in 2013, 2014 and 2015 by Institut d’émission d’outre-mer.

https://www.ccomptes.fr/Publications/Publications/Collectivite-de-la-Polynesie-francaise-Gestion-budgetaire-et-financiere-Exercices-2011-et-suivants


https://www.ccomptes.fr/Publications/Recherche-avancee/(offset)/50/(limit)/10/(sort)/attr_date_filter_dt;desc/(filters)/root-juridiction_s:Nouvelle-Calédonie)

https://www.ccomptes.fr/Publications/Recherche-avancee/(offset)/50/(limit)/10/(sort)/attr_date_filter_dt;desc/(filters)/root-juridiction_s:Nouvelle-Calédonie)

https://www.ccomptes.fr/Actualites/A-la-une/Rapport-d-activite-2015-des-chambres-regionales-et-territoriales-des-comptes-des-Antilles-et-de-la-Guyane3

https://www.ccomptes.fr/Actualites/A-la-une/Rapport-d-activite-2015-des-chambres-regionales-et-territoriales-des-comptes-des-Antilles-et-de-la-Guyane3

https://www.ccomptes.fr/Publications/Recherche-avancee/(limit)/10/(sort)/attr_date_filter_dt;desc/(filters)/root-juridiction_s:Saint-Pierre%20et%20Miquelon







PE 593.803 I - 57

Table 3: Level of compulsory levies in the French OCTs (in millions of euros and in %)

New

Caledonia

French

Polynesia

St

Barthelemy

Saint-

Pierre-

and-

Miquelon

Wallis-and-

Futuna

Reference Year 2011 2011 2005 2012 2008

OCT (a) 1 233 888 37 20 17

Sub-territorial

local authorities

(b)

36 56 0 8 0

Various bodies of

local government

(c)

39 17 0 1 0

Social security (d) 1 056 607 30 24 7

Compulsory levies

(e) 2 364 1 568 67 53 24

GDP (f) 7 105 4 346 235 172 151

Rate of

compulsory levies

(e/f)

33 % 36 % 29 % 31 % 16 %

Tax pressure

(a+b+c)/f 18 % 22 % 16 % 17 % 11 %

Rate of social

levies (d/f) 15 % 14 % 13 % 14 % 5 %

Source: Cour des comptes, L’autonomie-fiscale-en-outre-mer

Compared to other states, few French OCTs offer taxpayers a low tax rate. With the

exception of Wallis-and-Futuna, the compulsory tax rates charged by the French OCTs are

close to the average of the rates observed in the OECD (33.8 %) and the European Union

(38.4 %). Moreover, as indicated by the French National Audit Office, ‘the levels of levies

charged by the (...) local authorities concerned are of the same order as those of the states

which are situated in their geographical area’.103





PE 593.803 I - 58

And if there are any differences concerning the total level of compulsory levies between

mainland France and New Caledonia,104 French Polynesia105 and Saint-Pierre-and-

Miquelon,106 these are due mainly to the social levies and not to the tax levies.107

Weight of indirect taxation in the French OCT and consequent risk of international tax

evasion. A qualitative approach, however, shows that direct taxation is relatively low in

St. Barthelemy and Wallis-and-Futuna (developed below), which is a factor for tax evasion.

When a territory does not levy direct taxes, there is no declarative obligation for taxpayers.

Both their incomes and their fortunes may be easily concealed. In other words, the absence

of direct taxes may encourage non-resident taxpayers to locate assets in these territories

and hence to hide them from their states of residence. They may consequently avoid taxes

on their income (profits, interest, dividends, capital gains, etc.) and their wealth (holding

and, where applicable, inheritance or gift).

St. Barthelemy. The local authority of St. Barthelemy is certainly the one which, with

regard to this last series of considerations, presents the most risks in terms of international

tax evasion. A reading of the relevant tax code shows that direct taxation is virtually non-

existent.108 The tax revenues of this territory come mainly from land registration and

registration fees, as well as wharfage fees. At first glance, this OCT presents, under its tax

legislation, the most important risks in terms of international tax evasion. Given the rules

applicable to non-residents and 'neo-residents' (see below, point 2.3), this risk must be put

into perspective.

Wallis-and-Futuna. Direct taxation is also very low in Wallis-and-Futuna. There is no form

of taxation of the income of residents and non-residents, who are not subject to any income

tax or to any social levy of a fiscal nature (generalised social contribution, contribution to

the reimbursement of the social debt, and additional levies). Similarly, there is no corporate

income tax or income tax on securities. In theory, therefore, this OCT presents under its tax

legislation, significant risks in terms of international tax evasion. However, they have to be

particularly put into perspective in view of the weakness of the banking system of this local

authority whose economy is essentially subsistence and domestic. According to William

Gilles, this is what limits the possibilities of fiscal resources and the possibility of any direct

taxes.109

104 According to the European Commission, New Caledonia is nevertheless considered a tax haven

by Bulgaria, Latvia and Lithuania.

105 According to the European Commission, French Polynesia is nevertheless considered a tax haven

by Portugal.

106 According to the European Commission, Saint-Pierre-and-Miquelon is nevertheless considered a

tax haven by Latvia, Lithuania and Portugal.


108 The ‘Code des contributions’ is available on line.

109 William Gilles, ‘La fiscalité à Wallis-et-Futuna. Entre Faiblesse, Paradoxe et Apparence’, In Xavier

Cabannes, Regards sur la fiscalité dans le Pacifique sud, Journal de droit comparé du pacifique, volume

hors série No XVIII, 2015, spec. pp. 46-47.

http://ec.europa.eu/taxation_customs/business/company-tax/tax-good-governance/tax-good-governance-world-seen-eu-countries_fr




http://www.comstbarth.fr/codes_collectivites.aspx



PE 593.803 I - 59

The three other French OCTs. In the three other French OCTs, the tax structure is less

unbalanced. While indirect taxes account for 52 % of tax revenues in New Caledonia, 55 %

in Saint-Pierre-and-Miquelon and 60 % in French Polynesia,110 direct taxes are levied on all

types of income and are theoretically difficult to escape.

In French Polynesia, there is a territorial solidarity contribution which taxes all forms of

income of individuals (salaries, wages, pensions, life annuities and various allowances, but

also financial income and other income from patrimony). This contribution is a progressive

one, without family quotient. This tax is levied at source and (like the generalised social

contribution) finances social protection. In addition, there is a tax on transactions, which

applies to all beneficiaries of income other than wages or agricultural income.111 In other

words, all personal incomes (on a worldwide basis for residents and on a territorial basis

for non-residents) are taxed. The fact that some of them are levied at source makes it

difficult to avoid tax.

For its part, New Caledonia introduced an income tax in the early 1980s, the characteristics

of which are very close to mainland France’s income tax. All personal income (including

income from capital movements and capital gains) is therefore taxed, whether collected by

residents or non-residents. Again, most financial income is collected at source, which does

not favour international tax evasion.112

Similarly, New Caledonia, Saint-Pierre-and-Miquelon and French Polynesia levy direct

taxes on the profits of businesses. These taxes are payable irrespective of the state of

residence of the shareholders. Their bases include financial income and some of the capital

gains they realise. And the rates charged are relatively high, since the corporate tax rate is

35 % in French Polynesia (40 % until 2013), ranges from 30 % to 35 % in New Caledonia

and reaches 33.33 % in Saint-Pierre-and-Miquelon. In these three OCTs, further

contributions are added.

Finally, although property taxation is low in these three OCTs,113 the weaknesses noted

concern only local properties. Properties that are located on the territory of other states

may indeed be taxed by the latter (income and wealth taxes), both when they are owned

by residents and non-residents of the OCTs. Since few international tax treaties govern the

relations between OCTs and other states, there is in practice a considerable risk of double

taxation.

General assessment. Under these conditions, the risks of international tax evasion linked

to French Polynesia, New Caledonia and Saint-Pierre-and-Miquelon are relatively

measured. Beyond the questions already presented, account must be taken of the fact that

the relative weakness of direct taxes is not the result of a desire for attractiveness but of


111 See Code des impôts de Polynésie.

112 See Code des impôts de la Nouvelle-Calédonie.

113 For a detailed analysis, see Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013,

pp. 53-54.






PE 593.803 I - 60

‘historical sedimentation’.114 The systems currently in place date essentially from the 1970s

or 1980s, i.e. the development of the phenomenon of international tax evasion which they

neither provoked nor accompanied. Often neglected, the role of customs must also not be

ignored and partly explains the structuring of the tax systems of the French OCTs.115

In the end, the tax system of the OCTs does not pose a risk to metropolitan France or to

other states, but to the OCTs themselves. The main beneficiaries of the advantages given

by their tax systems are indeed their natural residents, whose contributions are ultimately

not being received by the French OCTs. On the other hand, there is little danger of the tax

systems of the French OCTs being used by residents of third states for the purposes of

international tax evasion. As will be explained below (point 2.3.), the banking system, the

standard of living of the population, the cost of living linked to indirect taxation and the

remoteness of other states are, moreover, not incentives in this respect.

2.2.2. The lack of tax audits

A weakness linked to the lack of resources implemented. In four of the five French OCTs

(New Caledonia, French Polynesia, St. Barthelemy and Wallis-and-Futuna), the weakness

of tax audits is likely to favour tax evasion. This situation is known by the taxpayers and

their advisors: therefore, those who want to hide their income or fortune may have an

interest in locating them in these OCTs if they know that the risk of control is low or non-

existent.

The weakness of the tax inspections suffered by certain French OCTs is mainly due to the

lack of resources available to the local authorities concerned, which are the main victims

of tax evasion when their own resources are at stake. However, these weaknesses are not

uniform in that the means available to the OCTs vary, depending in particular on the

statutory framework of each local authority.

Given the statutes endowed by the central state, the freedom of organisation is total in the

case of Polynesia and New Caledonia, and the means employed are essentially those of the

local authorities.116 In the other three OCTs, government services are more involved and

obtain better results. The French National Audit Office notes, on the one hand, that ‘the

greatest difficulties have been pointed, notably in French Polynesia, where the main part

of the administration of the tax is carried out by the local authority’117 and, on the other

hand, that ‘Saint-Pierre-and-Miquelon, which relies on the services of the state to ensure



116 In this respect, the French National Audit Office (‘Cour des comptes’) pointed out that in New

Caledonia, ‘However, the state participates in the administration of the tax through the local public

finance management within the framework of a management agreement dealing solely with the

recovery of certain tax revenues, through and the regional customs directorate in the context of the

provision of personnel. All other missions are carried out by the local authority itself, from the

production of the standard to the tax audit’ (Cour des comptes, L’autonomie fiscale en Outre-Mer,

November 2013, p. 76).








PE 593.803 I - 61

its fiscal missions, is the only overseas local authority to benefit from adapted resources,

and for which monitoring, recovery and fiscal control are carried out under satisfactory

conditions'.118

The most autonomous OCTs are of course aware of this situation and are trying to make

the necessary improvements. Since 2010, New Caledonia and French Polynesia have

reinforced the staff of their tax departments and have put in place internal controls and

steering tools.119 This reinforcement of resources immediately gave rise to positive

results.120 But they remain insufficient.

Weak tax audits in New Caledonia, French Polynesia, St. Barthelemy and Wallis-and-

Futuna. Thus, outside of Saint-Pierre-and-Miquelon, the French OCTs still have important

weaknesses in terms of tax audits.

It should be noted, for example, that in New Caledonia, the rate of tax audits is still too

low: 3.77 % for individuals, 3.78 % for professionals, and 5.8 % for companies liable to

corporation tax. The same is true in French Polynesia where the levels of control are not

better, ‘because with only five ‘category A’ agents, the external tax audit section cannot

easily fulfil all of its missions. However, since 2009, the temporary detachment of a senior

inspector from the Directorate General of Public Finance has led to an increase in the

recalled duties and penalties. Similarly, in 2011, the temporary reinforcement of four

auditors and a senior inspector resulted in a doubling of the number of checks and a ten-

fold increase in the recalled fees’.121 In other words, the weakness of tax audits essentially

results from a lack of resources, that is to say, from a lack of political will of the authorities

concerned, but also of the central state.

This is borne out by the fact that ‘In St. Barthelemy, no management agreement has been

signed with the state, in spite of the solicitations of the local authority since 2008. The

means devoted to the tax administration have remained modest: one ‘category A’ agent

and one ‘category C’ agent’.122 It follows that between 2007 and 2013, no field supervision

was organised outside the questions of the visitor's tax. Similarly, the management of the

declaratory procedure applicable to the wharf right did not start until 2011, since no

customs officer was assigned to this task before that date.123

118 Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013, p. 74. In this sense, see also

p. 78: ‘In general, the Territorial Audit Offices have found that when this responsibility is assured by

the local authority's own resources, it is more difficult for it to devote resources adapted to the stakes’.


120 In this sense, see footnote No 88 of the report published by Cour des comptes, L’autonomie fiscale

en Outre-Mer, November 2013, p. 78.












PE 593.803 I - 62

The situation is not better in Wallis-and-Futuna. It will be noted that, in addition to the lack

of administrative means, this local authority suffers from the fact that its tax system does

not include any penal sanctions. But if they existed, would such sanctions be applied?

This results in poor knowledge of tax bases by local tax administrations. The French

National Audit Office has thus been able to point out that ‘In French Polynesia and New

Caledonia, the tax administration has a limited knowledge of the incomes of self-employed

professions, traders, artisans and professions (...). In these two local authorities, regulations

and the state of cadastres and real estate files also hamper the development of effective real

estate taxation’.124 By way of illustration, the Office noted, for example, that in French

Polynesia, there were in 2010 approximately 36,000 taxpayers subject to property tax, while

76,000 homes were declared. More generally, the Office concluded that reporting

obligations in overseas local authorities, with the exception of Saint-Pierre-and-Miquelon,

are not always well respected.

The satisfactory level of tax audits carried out in Saint-Pierre-and-Miquelon. The

situation of these four OCTs contrasts with that of Saint-Pierre-and-Miquelon, where tax

services are those of the state and where efforts have been made in terms of staff and

procedures. In 2007, on-the-spot controls were added to the document controls: they take

place at a frequency similar to that in mainland France.125

2.3. The factors putting into perspective the risks of tax evasion

through French OCTs

Three factors. For three reasons, the risks of tax evasion via the French OCTs must be put

into perspective. Non-residents of the French OCTs remain subject to taxation in their state

of residence and may even be subject to double taxation; the French OCTs are often far

from their states of residence; and the local economy and local banking systems rarely

reach the level of development necessary to make French OCTs attractive for tax evasion

purposes.

2.3.1. The tax regimes applicable to non-resident taxpayers in the

French OCTs

The principle of taxation of non-residents of French OCTs by their states of residence.

In accordance with the principles set out in Article 4A of the French General Tax Code,

which are included in all tax codes of the French OCTs, residents and non-residents of the

OCTs (this last category includes residents of mainland France, residents of French

overseas departments or regions (DOM and ROM) and residents of other OCTs) shall not

be taxed under the same conditions. As a result, the tax benefits available to residents are

sometimes denied to non-residents. Moreover, no rule deprives their states of residence of

the right to tax non-residents of the OCTs.

124 Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013, pp. 80-81.

125 Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013, footnote No 74, p. 84.





PE 593.803 I - 63

The example of St. Barthelemy. The example of St. Barthelemy is particularly significant

in this respect. While it is often asserted that St. Barthelemy is a tax haven for its non-

residents,126 such claims from non-specialists are unfounded since non-residents do not

benefit by the advantages granted to residents. It is necessary to know that the taxpayers

who are not residents of St. Barthelemy are liable to the taxes due in their country of

residence, to which they must add the following local taxes in respect of the operations

they carry out in the territory of St. Barthelemy: a tax at the rate of 20 % based on real estate

gains realised by individuals; taxes on capital gains on the sale of transferable securities at

a minimum rate of 19 % plus social security contributions (15.5 %); and a 3 % tax on the

market value of buildings whose owners are not in compliance with their reporting

obligations. Insofar as St. Barthelemy has not concluded any convention for the elimination

of double taxation with foreign states, non-residents do not benefit from any preferential

treatment.

It follows that, unless they are a resident (which makes it possible to avoid direct taxes),

tax evasion is difficult for taxpayers in St. Barthelemy, especially since some of the

aforementioned levies are taxed at source. And it would be in vain for non-resident

taxpayers to implement strategies of tax evasion by becoming residents, which would

allow them to benefit from direct tax exemptions and hence to conceal income or

patrimonial elements, since French law contains a mechanism to counter this strategy.

More precisely, under paragraph I of Article LO 6214-4 of the French General Code of Local

Authorities, ‘The authority of St. Barthelemy shall exercise the powers it holds under 1 ° of

I of Article LO 6214-3 in respect of taxes, duties and taxes in compliance with the following

provisions: 1° Natural persons may be deemed to have their fiscal domicile in St.

Barthelemy only after having resided there for at least five years. Legal entities may be

considered as having their fiscal domicile in St. Barthelemy only after having installed the

seat of their effective management for at least five years or when they have installed the

seat of their effective management and are controlled, directly or indirectly, by natural

persons resident in St. Barthelemy for at least five years. Natural or legal persons who do

not fulfil the residency requirements laid down in the two preceding subparagraphs shall

be deemed to have their fiscal domicile in mainland France’. In other words, direct tax

exemptions that favour the concealment of income or assets are granted only to taxpayers

who have actually resided in St. Barthelemy for more than five years. And ‘neo-residents’

(that is to say those who have resided in St. Barthelemy for less than five years) are

therefore subject to mainland France’s tax law.

As Michel Collet, who is a practising lawyer in a prestigious law firm and very familiar

with local affairs, summarised, ‘The ‘neo-residents’ are treated as tax residents of France.

In the case of income or fortune originating in the territory of St. Barthelemy, ‘neo-

residents’ will also be taxable in St. Barthelemy - like any person not resident in St.

Barthelemy - where the tax code decides it. This is the case with respect to real estate gains

126 According to the European Commission, this is the case for Belgium. Several pages published on

the Internet are also in this sense : See for example Jean-Marc Sylvestre, ‘Exil fiscal : Les destinations

préférées des Français !’, 11 May 2013; and Jean-Marc Sylvestre, ‘Les paradis fiscaux pour les

nouveaux pauvres de l’occident’, 2 November 2013 ; Or Olivier Grivat, ‘St-Barthélémy: la France a

aussi son paradis fiscal’, 25 March 2012.


http://www.jeanmarc-sylvestre.com/2013/05/11/exil-fiscal-les-destinations-preferees-des-francais


http://www.atlantico.fr/decryptage/paradis-fiscaux-pour-nouveaux-pauvres-occident-jean-marc-sylvestre-887595.html


http://lesobservateurs.ch/2012/03/25/st-martin-et-st-barth-la-france-a-ses-paradis-fiscaux



PE 593.803 I - 64

on buildings situated in the territory of St. Barthelemy’.127 He added that ‘a phenomenon

of double taxation is likely to follow, since the ‘neo-resident’ should be taxed also in

mainland France on the same income. Tax residents of France are taxed on their income

from worldwide sources. In accordance with the organic law, the French tax will be

reduced by the tax levied in St. Barthelemy. No reimbursement will be granted in the case

of real estate, where the tax of St. Barthelemy would have to be higher than the French tax.

Finally, it should be noted that both French and foreign nationals are likely to be

considered ‘neo-residents’’.128

St. Barthelemy is not as attractive as it seems and is not the ideal territory for tax evasion.

This idea was rightly pointed out as follows: ‘Impossible to settle there deliberately, just

before making a large sum of money in one's home country, and then flee the year after’.129

In an article published in Le Monde Diplomatique, two researchers concluded that ‘St.

Barthelemy is not, in the legal sense, a tax haven, and will not become one of the new Euro-

Caribbean platforms for money laundering and great financial delinquency’.130

The taxation of non-residents of French OCTs by their states of residence. Finally, under

the law applicable in St. Barthelemy and in the other French OCTs, non-resident taxpayers

are not exempt from taxation imposed by other states. In particular, they may be taxed by

those other states on the income derived therefrom and on elements of fortune situated

therein. And if these states practice the principle of worldwide taxation, there is almost no

international tax convention calling into question their right to tax revenues from French

OCTs or the heritage elements located there.

2.3.2. The geographical distances and the difficulties of access

The remoteness of metropolitan France and of the European Union. The geographic

remoteness of the OCTs is twofold: these French territories are on the one hand remote

from mainland France and the European continent; and they are on the other hand far from

the third states to which the tax evaders would seek to escape.

In ascending order, it should be noted that:

- Saint-Pierre-and-Miquelon is 4,270 km from Paris,

- St. Barthelemy is 6,800 km from Paris,

- French Polynesia is 15,700 km from Paris,

- Wallis-and-Futuna are 16,200 km from Paris,

- New Caledonia is 16,700 km from Paris.

127 See Michel Collet, ‘Eclaircissement sur les fiscalités applicables à Saint-Barthélemy’, CMS Bureau

Francis Lefebvre, October 2010.



129 Laurent Guez, ‘Saint-Barth La drôle d'économie d'un paradis’, 22 July 2016.

130 Sébastien Chauvin and Bruno Cousin, ‘Saint-Barthélemy, petit paradis pour milliardaires - Une

île française sans impôts’, Le Monde Diplomatique, January 2006.

https://cms.law/fr/FRA/Publication/Eclaircissement-sur-les-fiscalites-applicables-a-Saint-Barthelemy


http://www.lesechos.fr/22/07/2016/LesEchosWeekEnd/00041-014-ECWE_saint-barth-la-drole-d-economie-d-un-paradis.htm

http://www.monde-diplomatique.fr/2006/01/CHAUVIN/13141




PE 593.803 I - 65

The remoteness of third countries. Similarly, French OCTs are relatively far from third

countries. For example, French Polynesia is 5,700 km from Australia, 6,200 km from the

United States and 9,500 km from Japan. And New Caledonia or the islands of Wallis-and-

Futuna are respectively 3,300 and 4,300 km from Australia. St. Barthelemy and Saint-

Pierre-and-Miquelon are closer to the American continent.

In addition, access to these OCTs is not always easy.

This remoteness and, in any event, the difficulties of access make international tax evasion

complicated. Indeed, tax evasion presupposes a certain proximity or, at the very least,

relative accessibility. And while it is true that the dematerialisation of the economy makes

it easier to avoid tax using false domiciliation, the French OCTs are little concerned by this

phenomenon. As William Gilles points out, ‘Unlike individuals, corporate managers have

the ability to locate their headquarters in Wallis-and-Futuna in the digital age, while

continuing to manage them at distance in a more favourable environment, but the statistics

show a reverse trend’.131 In the end, only St. Barthelemy knows an abnormally high number

of companies: this explains why Eric Boquet, a French senator, refused to vote in favour of

the law ratifying an agreement between France and St. Barthelemy for the following

reasons: ‘Having a code of contributions partly inspired by French tax law, St. Barthelemy

must indeed be considered as a tax haven - of a particular form perhaps - situated moreover

in an area of the planet which is already sufficiently provided. This is borne out by the fact

that St. Barthelemy has more than 4,000 businesses for just over 9,000 residents: this is still

a rather exceptional situation…’132

2.3.3. The low level of development of local economies and

banking systems

Level of development of local economies. Finally, the level of development of local

economies and banking systems does not favour tax evasion thanks to the French OCTs.

This is particularly the case in Wallis-and-Futuna, where an author has written that ‘the

economy of this local authority is essentially subsistence and domestic, which limits the

possibilities of tax resources. This economic system makes it difficult to introduce a tax

based on value creation or profits: the product of economic activity - which is essentially

based on agriculture, livestock and artisanal fisheries - is not only little creative value, it is

mostly consumed directly by the population.133

131 William Gilles, ‘La fiscalité à Wallis-et-Futuna. Entre Faiblesse, Paradoxe et Apparence’, In Xavier


hors série No XVIII, 2015, p. 53.

132 Eric Bocquet, ‘La collectivité de Saint-Barthélemy doit bel et bien être considérée comme un

paradis fiscal’, 28 September 2015.

133 William GILLES, ‘La fiscalité à Wallis-et-Futuna. Entre Faiblesse, Paradoxe et Apparence’, In Xavier


hors série No XVIII, 2015, pp. 46-47.

http://ericbocquet.fr/activite-des-senateurs/la-discussion-et-le-vote-de-la-loi/finances/article/la-collectivite-de-saint-barthelemy-doit-bel-et-bien-etre-consideree-comme-un



PE 593.803 I - 66

With the exception of St. Barthelemy, French OCTs suffer from a lack of dynamism in the

local economy, poor infrastructures and sometimes geographical handicaps. As noted by

the French Senate on Wallis-and-Futuna in the presentation of the 2012 Finance Act, ‘The

economic and social development of the territory is constrained by natural and structural

handicaps, accentuated by several factors: high transport costs, distance from potential

markets, low domestic market size, higher production costs than in neighbouring

countries’.134 Similarly, it is clear from a serious analysis published about this territory in

Le Monde that ‘It is estimated that about 70 % of the islands population does not have access

to the monetary economy, and lives self-sufficiently from its own production (pigs, fruit

trees, fishing ...). Public employment is relatively large in terms of population, and output

from public services accounts for 55 % of the GDP of the islands. The islands benefit from

European aid (€ 16.5 million under the EDF) and from state grants (around € 70 million)’.135

These reasons undoubtedly explain why no EU Member State regards Wallis-and-Futuna

as a tax haven.136

Characteristics of the banking systems. In view of the characteristics of the banking

systems to be examined below (point 3.3., in the context of the study on the fight against

money laundering), tax evasion via the French OCTs is also difficult. There are few banks

in the French OCTs; they are directly controlled by the major banks of mainland France;

they collect a great deal of information from the account holders, notably on the origin of

funds and income; and they offer only basic financial products, practicing essentially a

deposit bank activity.

2.4. Conclusion

In the end, the risks of tax evasion are low in French Polynesia, New Caledonia and Saint-

Pierre-and-Miquelon. The fact that levies at the source are used contributes to making tax

evasion difficult.

For its part, the territory of Wallis-and-Futuna does not levy any direct tax on non-

residents. However, the level of development of these islands and the level of banking

services make them unattractive, even for non-residents wishing to engage in tax evasion.

Only the case of St. Barthelemy can ultimately be open for discussion, all the more so as

the tax audits are weak. However, most experts agree that the risk of tax evasion is reduced.

Responding negatively to the question of whether it is interesting to transfer a company’s

tax residence or location to St. Barthelemy for the purpose of tax evasion, Mr. Collet has

identified three factors:

134 French Sénat, Projet de loi de finances pour 2012 : Collectivités d'outre-mer, Nouvelle Calédonie

et TAAF - Avis n° 112 (2011-2012) de M. Christian COINTAT, fait au nom de la commission des lois,

17 November 2011.

135 Nicolas Six, ‘Wallis-et-Futuna, petit bout de France où règnent trois rois’, Le Monde, 5 September

2014.

136 See the list published by the European Commission. Even though Wallis-and-Futuna is the French

OCT with the lowest tax burden, it is the only one to be considered as a tax haven by any Member

State of the European Union.

http://www.senat.fr/rap/a11-112-3/a11-112-3.html

http://www.lemonde.fr/les-decodeurs/article/2014/09/05/wallis-et-futuna-un-archipel-francais-compose-de-trois-royaumes_4482851_4355770.html




PE 593.803 I - 67

- ‘The necessary condition of prior installation for 5 years’;137

- ‘The absence of a conventional network which will most likely result in a penalty

of taxation at the source of the goods and foreign and French income of people

relocating to Saint Barth. Because when we speak of tax relocation, we speak of

populations that generally have wealth and international sources of income’;138

- ‘Finally, there is the distance. In my opinion, relocation can only be effective if one

actually establishes one's home, one's life in Saint Barth, which is likely to be a

problem. To conclude on the subject, I will say that in terms of changes in tax

residence abroad, there are countries at 1h30 of Paris by train where one finds very

advantageous solutions, both in terms of taxation proposed locally and in the

framework of comprehensive networks of tax treaties’.139






Francis Lefebvre, October 2010. In this sense, see also Maïté Koda, Interview of Professor Bernard

Castagnède, ‘Parler de paradis fiscal pour l'Outre-mer français relève de la mythologie’, Outre Mer

1ère, 25 April 2013.




http://la1ere.francetvinfo.fr/2013/04/25/parler-de-paradis-fiscal-pour-l-outre-mer-francais-releve-de-la-mythologie-31355.html


PE 593.803 I - 68

3. French OCTs and anti-money laundering

Summary and plan. The remarks made on the effectiveness of the tax audit procedures are

also valid in the fight against money laundering.

In this field, it must be stated that, although the rules applicable in the French OCTs are

very close to the regulation of mainland France and therefore comply with the

requirements of European Union law (3.1.), the intensity of controls and the production of

data relating thereto remains insufficient (3.2.).

This is all the more unfortunate as the laundering practices are relatively limited in the

French OCTs (3.3.).

3.1. The indirect application of European anti-money laundering

rules in the French OCTs

Application of metropolitan law with adaptations. In the French OCTs, the rules

applicable to the fight against money laundering are virtually identical to those prevailing

in mainland France. Therefore, secondary legislation of the European Union applies

indirectly, but certainly. In other words, the European regulations do not apply directly

(legally impossible), but thanks to the extension made by French law (legally possible even

if not obligatory).

This is in part due to the fact that ‘the three territories using the euro, Saint-Pierre-and-

Miquelon, St. Barthelemy and Saint-Martin, apply European secondary banking and

financial law’,140 which includes the rules relating to the fight against money laundering.

This is also due to the fact that in all the decentralised overseas local authorities (including

the three other OCTs), the state has retained its competence in the field of security and

repression of tax offences (and similar offenses) having a penal character. For example,

Article 7 of the Organic Law of 27 February 2004 on French Polynesia provides that ‘In

matters falling within the jurisdiction of the state, the laws and regulations applicable in

French Polynesia shall be expressly stated to that end. By way of derogation from the first

subparagraph, have full force and effect in French Polynesia, without prejudice to

provisions adapting to its particular organisation, the laws and regulations relating to: (...)

8. Combating illicit traffic and money laundering, combating the financing of terrorism,

the powers of investigation and detection of infringements and customs procedures, the

system of foreign investment in an activity which participates in the exercise of official

authority, or activities of a nature likely to infringe public policy, public security, the

interests of national defence or the activities of research, production or marketing of arms,

ammunition, explosive substances’. Similar examples could be given for all other overseas

French local authorities that are the subject of this study.141


141 Concerning St. Barthelemy, see article LO 6214-3 du Code général des collectivités territoriales.

Concerning Saint-Pierre-et-Miquelon, see article LO 6414-1 du Code général des collectivités

territoriales.

http://www.fondafip.org/f2063_Rapport_sur_l_autonomie_fiscale_en_Outre_mer.pdf.

https://www.legifrance.gouv.fr/affichCodeArticle.do?idArticle=LEGIARTI000006393828&cidTexte=LEGITEXT000006070633





PE 593.803 I - 69

Traditional extension to the French OCTs of EU secondary legislation on the fight

against money laundering. The extension to the French OCTs, via the laws of the central

state, of the rules of secondary legislation of the European Union relating to the fight

against money laundering is a trend which can be observed for a long time. Otherwise

explained, the French legislator has long extended the EU's anti-money laundering rules

to the French OCTs, although it is not obliged to do so.

The statement of reasons for a Commission decision of 26 November 2009 ‘authorising

France to conclude an agreement with Saint-Pierre-et-Miquelon, Mayotte, New Caledonia,

French Polynesia and Wallis and Futuna respectively for transfers of funds between France

and each of these territories to be treated as transfers of funds within France, pursuant to

Regulation (EC) No 1781/2006 of the European Parliament and of the Council)’142 testifies

it. It is indeed possible to read there:

- that ‘Saint-Pierre-et-Miquelon, Mayotte, New Caledonia, French Polynesia and

Wallis and Futuna do not form part of the territory of the Community as

determined in accordance with Article 299 of the EC Treaty. However, Saint-

Pierre-et-Miquelon and Mayotte through a Council Decision of 31 December 1998

as well as New Caledonia, French Polynesia and Wallis and Futuna through

Protocol 27 on France annexed to the Treaty of the European Community form

part of the currency area of France. Saint-Pierre-et-Miquelon, Mayotte, New

Caledonia, French Polynesia and Wallis and Futuna therefore comply with the

criterion set out in Article 17(1)(a) of Regulation (EC) No 1781/2006’;

- that ‘Payment services providers in Saint-Pierre-et-Miquelon, Mayotte, New

Caledonia, French Polynesia and Wallis and Futuna participate directly in

payment and settlement systems in France, namely either CORE or Target2-

Banque de France. They therefore comply with the criterion set out in Article

17(1)(b) of Regulation (EC) No 1781/2006’;

- that ‘Order No 2009-103 of 30 January 2009 concerning the freezing of assets

notably in the fight against terrorism financing ensure that appropriate measures

are in place in to Saint-Pierre-et-Miquelon, Mayotte, New Caledonia, French

Polynesia and Wallis and Futuna to impose financial penalties vis-à-vis entities or

persons listed by the United Nations or the European Union’;

- that ‘Order No 2006-60 of 19 January 2006 modernising the financial and economic

law applicable to Mayotte, New Caledonia, French Polynesia and Wallis and

Futuna, Decree No 2006-736 of 26 June 2006 concerning the fight against money

laundering and modifying the financial and monetary code and Law No 2004-130

of 11 February 2004 reforming the statute of some judiciary and legal professions

ensure that Saint-Pierre-et-Miquelon, Mayotte, New Caledonia, French Polynesia

and Wallis and Futuna have in place an anti-money laundering regime equivalent

to that in application on the French territory as regards transfers of funds’

- and that ‘Saint-Pierre-et-Miquelon, Mayotte, New Caledonia, French Polynesia

and Wallis and Futuna have adopted the same rules as those established under

Regulation (EC) No 1781/2006 and require their respective payment services

142 Official Journal of the European Union, L. 312, 27 November 2009, pp. 71-72.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv:OJ.L_.2009.312.01.0071.01.ENG&toc=OJ:L:2009:312:TOC


PE 593.803 I - 70

providers to apply them, thus fulfilling the criterion set out in Article 17(1)(c) of

that Regulation’.

Many other examples could be given. This is the case, for example, with the decree of 22

September 2009143 implementing overseas Articles L. 562-1 et seq. of the French Monetary

and Financial Code concerning obligations to combat money laundering and the financing

of terrorism. This decree extended the aforementioned provisions of the Monetary and

Financial Code to the territories which at the time of its adoption were then OCTs: Mayotte,

Saint-Pierre-and-Miquelon, New Caledonia, French Polynesia, Wallis-and-Futuna Islands,

and French Southern and Antarctic Territories.

Similarly, it is interesting to read in the report of a hearing in the framework of the

European affairs committee of the French Senate144 held shortly after the drafting of the

European Council decision on the modification of the European Statute of the island of St.

Barthelemy, ‘that the evolution of St. Barthelemy towards the status of OCT would not be

detrimental to the general interests of the Union: (...) France wishing that the euro continue

to be used in St. Barthelemy, monetary continuity will be ensured. As it has confirmed to

the European Commission, which is particularly vigilant on this subject, France will

subscribe to the undertakings necessary for the application in Saint Barthelemy of the rules

relating to combating counterfeiting of currency, of the rules relating to combating the

illicit circulation of money and the money laundering, and of the rules relating to

administrative cooperation and fiscal transparency. The transformation of St. Barthelemy

into the OCT thus meets the specific needs of this local authority, without threatening the

general interests of the European Union’.145

Extension to the French OCTs of the most recent provisions of European Union anti-

money laundering legislation. The provisions recently adopted by the French authorities

with a view to transposing the most recent European secondary legislation still go in this

direction. Pursuant to Article 118 of Law No 2016-731 of 3 June 2016,146 which strengthened

the fight against organised crime and terrorism and their financing, an Order of 1

December 2016147 extended to the French OCTs most of the rules set out:

- in Regulation (EU) 2015/847 of the European Parliament and of the Council of 20

May 2015 on information accompanying transfers of funds and repealing

Regulation (EC) No 1781/2006;

143 Journal Officiel de la République Française, No 229, 3 October 2009, p. 16039.

144 In this case, 13 October 2010.

145 Sénat, Communication de M. Jean Bizet et audition de M. Michel Magras, sénateur de Saint-

Barthélemy - Modification du statut de Saint-Barthélemy, examen par la commission des affaires

européennes le 13/10/2010.

146 Loi n° 2016-731 du 3 juin 2016 renforçant la lutte contre le crime organisé, le terrorisme et leur

financement, et améliorant l’efficacité et les garanties de la procédure pénale, Journal Officiel de la

République Française, No 129, 4 June 2016, text No 1, article 118.

147 See Ordonnance n° 2016-1635 du 1er décembre 2016 renforçant le dispositif français de lutte contre

le blanchiment et le financement du terrorisme, Journal Officiel de la République Française, No 280, 2

December 2016, text No 14, articles 17 to 19.

https://www.senat.fr/ue/pac/E5608.html



https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000032627231&categorieLien=id






PE 593.803 I - 71

- and in Directive (EU) 2015/849 of the European Parliament and of the Council of

20 May 2015 on the prevention of the use of the financial system for the purposes

of money laundering or terrorist financing, amending Regulation (EU) No

648/2012 of the European Parliament and of the Council, and repealing Directive

2005/60/EC of the European Parliament and of the Council and Commission

Directive 2006/70/EC.

3.2. Critical examination of the effectiveness of the rules

applicable within the French OCTs

Necessity of the examination. Whilst the rules on money laundering applicable in the

French OCTs thus present no theoretical risk for the European Union and its Member

States, the question of its effective observance arises. Similarly to what has been observed

concerning the fight against tax evasion, the latter very often depends on the

administrative means actually implemented (which are not uniform) as well as on the

attitude of professionals and citizens.

Insufficiencies have been noticed. They relate to the intensity of the reporting of suspicions

and of the controls (3.2.1.) and the production of related data (3.2.2.).

3.2.1. The insufficiency of the reporting of suspicions and of the

controls

Weakness in the number of reports of suspicions. The fight against money laundering is

largely based on reports of suspicions made by professionals (such as credit institutions,

accountants, notaries and lawyers) to national supervisory authorities. It should be noted,

first of all, that very few reports of suspicions (RS) are sent by professionals located in the

French OCTs to the Tracfin service.148

For example, the last annual activity report published by this service indicates that,

compared to those operating in mainland France, accountants established in the OCTs

rarely bring cases to the attention of the anti-money laundering authorities. This report

states, inter alia, that ‘Conversely, other regions sensitive to AML/CFT risks are under-

represented. This is particularly the case for Corsica and the Overseas Regions, where the

professionals of the number have transmitted only 12 RS in 2015’.149 It should be noted that

during the same period, more than 45,000 reports of suspicions were sent to Tracfin in

mainland France by the professionals operating there.

This situation is not new. In a report published in 2011, the FATF already noted that

‘Although the legislation in force is, apart from a few minor exceptions, the same

throughout France, the assessors highlighted in the report several situations that raise

148 Tracfin is the acronym for ‘Traitement du renseignement et action contre les circuits financiers

clandestins’ (Intelligence and action against clandestine financial circuits). It is an organisation

belonging to the Ministry of the Economy and Finance, in charge of the fight against money

laundering.

149 Tracfin, Rapport annuel d’activités Tracfin 2015.

http://www.economie.gouv.fr/files/ra-2015-tracfin.pdf


PE 593.803 I - 72

doubts as to how effectively AML/CFT measures are implemented in overseas France.

Thus, there remain serious doubts as to the full implementation of the STR obligation in

certain territories situated overseas (this point applies to both the financial and non-

financial professions)’.150

This situation can be explained in two ways:

- The first explanation is the lack of a culture of anti-money laundering on the part

of local professionals. In this sense, the evaluation report drafted by the FATF in

2011 indicates ‘that while the strong financial connection with metropolitan France

facilitates the implementation of AML/CFT legislation in these territories, it is also

true that the geographical remoteness of these territories lessens the impact of the

authorities’ communication and awareness efforts regarding the covered

professions’.151 Similarly, the report notes that ‘no resources – or almost none – are

devoted by Tracfin in territories located overseas to dialogue and exchanges and,

more particularly to awareness raising on STR obligations among covered

professions’.152 The absence of professional organisations that can guide and

support professionals can also be stressed.

- The second explanation is the weakness of money laundering in the French OCTs

(see below, 3.3.).

Weak controls. The weakness of the controls responds to the weakness of the reports of

suspicions.

This weakness was identified as early as 2011 by the FATF. In an evaluation report, it is

thus possible to read that ‘At the level of AML/CFT compliance inspections for financial

professionals, the evaluation report notes the virtual absence of on-site inspections by the

AMF in these territories and the necessity for the ACP to increase its inspection activity’.153

There is no indication that the conclusions drawn should now be called into question.

The same is true for non-financial professionals, which are also important: ‘Inspections in

overseas territories are organised in the same way as in metropolitan France, apart from a

few exceptions, the scope of which is still hard to determine. The deployment of LAB/CFT

inspections cannot be measured in these territories either. It appears to be crucial for the

authorities to examine the organisation of these inspections and their effectiveness

throughout the whole country’.154

150 FATF, Anti-Money Laundering and Combating the Financing of Terrorism. France, 25 February 2011,

p. 5.


p. 5.


p. 5.


p. 5.


p. 17.

http://www.fatf-gafi.org/media/fatf/documents/reports/mer/MER%20France%20ES%20ENG.pdf







PE 593.803 I - 73

3.2.2. The lack of data on money laundering in the French OCTs

Acknowledgment of the absence of data. The weakness of the reports of suspicion and

then the weakness of the controls imply, mechanically, a difficulty for the French

authorities to produce data relating to laundering and the fight against money laundering

in the French OCTs.

For example, the annual activity reports published by Tracfin do not contain any

substantial data on the number of checks carried out in the French OCTs and on the

infringements found. This absence is very significant in view of the missions of Tracfin. It

contrasts with the high quality, on all other points, of the reports published by this service.

Equally significant is the fact that the author of this report has not been able to find the

number of staff assigned to anti-money laundering missions in the French OCTs.

Finally, some press reports show that local authorities are not necessarily aware of the risks

of money laundering.155

Condemnation by the FATF of the absence of data. This conclusion has been shared by

the FATF. When France's most recent anti-money laundering and terrorism assessment

was carried out within the framework of this group, it was more precisely pointed out that

‘The absence of government authorities clearly identified for dealing with AML/CFT

matters in these territories is especially viewed as a difficulty. French authorities should

rectify these shortcomings and, more broadly, improve knowledge of the risks of money

laundering and terrorist financing in every region of the country’.156

It was then suggested that ‘French authorities should therefore consider collecting

quantified data more systematically and broadly by motivating all the authorities

involved. Also, despite the existence of law enforcement authorities in the territories

located overseas, too little quantified data is available regarding their crime-fighting

activities in these regions. The lack of statistics and clarity in the available quantified data

thus made it impossible for the assessment team to assess with any certainty the

effectiveness of law enforcement authorities concerning AML/CFT throughout France’.157

However, these recommendations did not lead to any formal follow-up.

155 See for example Matthieu Delahousse, « Panama Papers : ce vendeur de fruits et légumes qui

intéresse la justice », L’obs, 16 May 2016.


p. 5.


p. 7.

http://tempsreel.nouvelobs.com/economie/20160513.OBS0385/panama-papers-ce-vendeur-de-fruits-et-legumes-qui-interesse-la-justice.html





PE 593.803 I - 74

3.3. The need to put into perspective the risks of money-

laundering via the French OCTs

Weakness of laundering in French OCTs. However, money-laundering remains low in

the French OCTs. The main reason is that the banking system in place in these territories

is not conducive to laundering practices, given its level of development and structuring

(3.3.1.). Considering then the amount of the bank assets and the number of bank accounts

held in the French OCTs, it seems that the importance of money laundering is relatively

low (3.3.2.).

3.3.1. Limited risks with respect to banking systems and feasible

banking operations

Two banking systems. There are two banking systems in the French OCTs, both of which

bear witness to the unitary nature of the French state, the existence of a decentralised

organisation and the lack of autonomy or sovereignty of the French OCTs. Both are

evidence of the unitary character of the French state, the existence of a decentralised

organisation and the lack of autonomy or sovereignty of the French OCTs:

- Saint-Pierre-and-Miquelon and St. Barthelemy (Atlantic zone) on the one hand are

two OCTs using the euro. The banking system deployed there is therefore the

metropolitan banking system, under the aegis of the Banque de France, which itself

operates within the European framework;

- New Caledonia, French Polynesia and Wallis-and-Futuna (Pacific zone) on the

other hand do not use the euro, but the Pacific franc. The functions of Central Bank

are provided by the Institut d’Emission d’Outre-Mer (IEOM), to which three

missions are entrusted:

1. To be a relay of the national financial strategy, notably in fiduciary

matters, but also by refinancing the banking system through monetary

policy tools, and by clarifying financial decisions through analyses,

statistical, financial or legal analysis;

2. To contribute to financial stability through prudential policies,

supervision of banking actors, monitoring of means of payment and

control of anti-money laundering procedures;

3. To render public services to economic actors, through the function of

economic and banking observatory, but also by advising vulnerable

groups (over-indebtedness, bank bans, etc.) or by managing the

accounts of financial actors and public actors.

The result is a banking organisation that does not favour money laundering. Similarly,

financial products offered locally are not very sophisticated.

The banking offer in the Atlantic area (Saint-Pierre-and-Miquelon and St. Barthelemy).

In the Atlantic area, the banking offer is relatively limited. According to the Institut

d'Emission d’Outre-Mer, the banking and financial activities of the archipelago of Saint-

Pierre-and-Miquelon are organised around only five establishments: they are two

cooperative banks (Caisse d’Epargne CEPAC (ex-Banque de Saint-Pierre-et-Miquelon) and

Caisse d’Epargne Île-de-France), the Banque Postale (commercial bank), a finance company



PE 593.803 I - 75

(Coopérative Immobilière des Iles Saint-Pierre-et-Miquelon) and a specialised credit institution

(Agence Française de Développement).158 Most of these establishments are thus secondary

establishments of metropolitan establishments controlled in mainland France, whose

reputations in terms of the fight against money laundering are satisfactory.

Similar remarks can be made about St. Barthelemy. The bank offer is based on four banks

of the French Banking Federation of St. Barthelemy (namely Banque des Antilles Françaises,

Banque Française Commerciale Antilles-Guyane, BNP Paribas Guadeloupe, and the Banque

Postale) and two cooperative banks (BRED - Banque Populaire (BPCE Group) and Caisse

Régionale de Crédit Agricole de la Guadeloupe).159 Apart from Caisse Régionale de Crédit Agricole

de la Guadeloupe, which is headquartered in Guadeloupe (‘DOM’, to which St. Barthelemy

was previously attached), all these establishments have their headquarters in mainland

France.

In Saint-Pierre-and-Miquelon and in St. Barthelemy, most of the activity is carried out by

metropolitan establishments. In mainland France, they are subject to controls and audits,

which also cover overseas operations once they are included in their balance sheets.

The banking offer in the Pacific area (New Caledonia, French Polynesia and Wallis-and-

Futuna). In the Pacific area, the banking offer is not more developed. According to the

Institut d’Emission d’Outre-Mer, banking and financial activity in French Polynesia is

organised around three banks (Socredo, Banque de Polynésie, and Banque de Tahiti), three

financing companies (Ofina, Sogelease BDP and Oceor Lease Tahiti), and the Centre de chèques

postaux de Papeete under the aegis of the Post and Telecommunications Office (OPT). In

addition to the local banking system, seven locally-established financial institutions

operate regularly from mainland France, with the main focus being on financing local

authorities and providing housing loans to individuals. Casden Banque Populaire

(represented locally by Banque de Polynésie and Socredo), the French Development Agency

(AFD: Agence française de développement), DEXIA, Natexis-Banques Populaires, the European

Investment Bank and Société de gestion des fonds de garantie d’outre-mer (Sogefom). Caisse des

dépôts et consignations (CDC), which is not a credit institution within the meaning of the

French Monetary and Financial Code, also intervenes in French Polynesia.160

In New Caledonia, there are nine local credit institutions: four banks belonging to the local

committee of the Fédération Bancaire Française (Banque Calédonienne d’Investissement, Société

Générale Calédonienne de Banque, BNP Paribas Nouvelle Calédonie, and Banque de Nouvelle

Calédonie), a specialised credit institution (Caisse de Crédit Agricole Mutuel de Nouvelle

Calédonie) and four financing companies (Crédit Calédonien et Tahitien, OCEOR LEASE

Nouméa, Nouméa Crédit and GE Money). The offer of banking services is supplemented by

Centre financier de Nouméa (service of the Post Office and Telecommunications). In addition

to the local banking system, seven credit institutions, located outside the monetary zone,

operate with some regularity in New Caledonia: the French Development Agency (AFD),

158 See Institut d’Emission d’Outre-Mer.



http://www.iedom.fr/saint-pierre-et-miquelon/banques/

http://www.iedom.fr/saint-barthelemy/banques/

http://www.ieom.fr/polynesie-francaise/banques/


PE 593.803 I - 76

the European Investment Bank (EIB), CASDEN Banques Populaires (represented locally by

Société générale calédonienne de banque), Banque calédonienne d’investissement, Dexia (formerly

CLF: Crédit Local de France), Natexis-Banque Populaire and the Société de gestion des fonds de

garantie d’outre-mer (SOGEFOM). The Caisse des dépôts et consignations (CDC) also

intervenes locally.161

In New Caledonia as in French Polynesia, the present credit institutions are therefore not

those that favour money laundering.

Finally, in Wallis-and-Futuna, the banking system is weakly developed. It is composed of

a retail bank (Banque de Wallis-et-Futuna), which is the only commercial bank of the place

(it is a subsidiary of BNP Paribas Nouvelle-Calédonie, belonging to the French BNP Paribas

group), and of a public institution (the Directorate of Public Finance of the Wallis-and-

Futuna Islands, authorised by decree of 20 December 2001 to continue its activity of

managing personal accounts, but not to open new accounts, in the territory of the Wallis-

and-Futuna Islands). In addition, a specialised credit institution, the Agence Française de

Développement (AFD), assists the local authorities, the private sector and civil society by

providing loans or guarantees through SOGEFOM.162

Rudimentary nature of the banking operations that can be carried out in the French

OCTs. Entirely dependent on metropolitan establishments, the few banks located in the

French OCTs offer locally few services to their customers.

For the most part, the services offered are retail banking services. In a report published in

2013, the Institut d’Emission d’Outre-Mer indicated, for example, that ‘The banking system

of Pacific local authorities is made up of retail banks, oriented towards the collection of

resources and the distribution of credits, which is shown by the preponderance of

transactions with customers in the balance sheets (78.5 % of assets and 69.5 % of liabilities).

Market and asset management activities are non-existent, as they are managed by parent

companies located in mainland France. The range of means of payment available to

customers of the Pacific local authorities is varied and comparable to that of mainland

France, while the supply of savings products is concentrated on conventional products

(demand deposits, term). Banks offer life insurance contracts as well as investment

securities (stocks, bonds, UCITS), but these are transferred to mainland France, where they

are managed. Regulated savings products are more limited than in mainland France:

ordinary booklets, accounts and home purchase savings plans are found in both

geographies, while Livrets A are only available in New Caledonia. In the lending market,

the banking offer is concentrated on so-called ‘conventional’ loans and leasing’.163 In other

words, the activities carried out by credit institutions in the French OCTs in the Pacific area

do not present any risk in terms of money laundering.




http://www.ieom.fr/nouvelle-caledonie/banques-52/

http://www.ieom.fr/wallis-et-futuna/banques/presentation-du-systeme-bancaire.html

http://www.ieom.fr/IMG/pdf/note_ie_panorama_activite_bancaire_com_2003-2013.pdf



PE 593.803 I - 77

The same applies to banks in the Atlantic area. Locally, there is no financial instrument to

effectively engage in money laundering activities.

As proof of the rudimentary nature of the banking system in certain OCTs, it should finally

be noted that in the Wallis-and-Futuna archipelago, ‘the BWF has a Bank Automat in

Wallis, made available to make cash withdrawals by credit card (Carte Bleue Visa, Visa

Premier, Mastercard and Eurocard). This type of service does not exist in Futuna’.164 As a

reminder, the local economy is not very developed. It is essentially oriented towards self-

sufficiency of a population, 70 % of which does not use any banking service.

3.3.2. Money laundering practices necessarily low given the

number of bank accounts opened in the French OCTs and

the amount of bank assets

Two indicators. In addition to its theoretical difficulty, given the banking systems and the

operations carried out, the absence of a developed practice of money laundering in the

French OCTs can be deduced from the examination of two indicators: the number of bank

accounts and the amount of assets.

Weak number of bank accounts. Relative to the number of inhabitants, the number of

bank accounts is relatively low in the French OCTs. Without their number being known,

this shows that few non-residents open bank accounts in the French OCT for money

laundering purposes. For example, in French Polynesia, local banks and the OPT managed,

on 31 December 2015, 385 301 bank accounts distributed as follows:

Table 4: Number of bank accounts in French Polynesia

2011 2012 2013 2014 2015 Variation

2015/2014

Current

accounts 214 500 205 800 199 894 205 790 207 059 0.6 %

Special saving

accounts 155 957 153 816 154 143 153 647 154 114 0.3 %

Of which

Ordinary

booklets

140 346 139 717 139 948 139 682 139 508 -0.1 %

Of which

Housing Savings

accounts

718 770 827 776 758 -2.3 %

Of which

Housing Savings

plans

12 893 13 329 13 368 13 189 13 848 5.0 %


http://www.ieom.fr/wallis-et-futuna/banques/presentation-du-systeme-bancaire.html


PE 593.803 I - 78

2011 2012 2013 2014 2015 Variation

2015/2014

Term deposit

accounts 18 297 21 824 24 002 24 518 24 022 -2.0 %

Cash certificates

and certificates

of deposit

243 175 152 131 106 -19.1 %

Total 386 997 381 615 378 191 384 086 385 301 0.3 %

Source: Institut d’Emission d’Outre-Mer

The number of accounts per capita was thus 1.4, which is small.

Table 5: Number of bank accounts per capita in French Polynesia

2011 2012 2013 2014 2015 Variation

2015/2014

Current

accounts 0.80 0.76 0.74 0.76 0.76 -0.2 %

Special

saving

accounts

0.58 0.57 0.57 0.57 0.56 -0.5 %

Of which

Ordinary

booklets

0.52 0.52 0.52 0.52 0.51 -0.9 %

Term

deposit

accounts

0.07 0.08 0.09 0.09 0.09 -2.8 %

Total 1.45 1.42 1.40 1.42 1.41 -0.5 %


Similar results can be found in New Caledonia. On 31 December 2015, locally-established

banks managed 517,200 bank accounts, i.e. 1.89 accounts per capita.





PE 593.803 I - 79

Table 6: Number of bank accounts in New Caledonia

2011 2012 2013 2014 2015 Variation

2015/2014

Current

accounts 192 653 199 804 205 701 214 036 221 210 3.4 %

Special saving

accounts 264 519 272 451 278 010 283 561 285 405 0.7 %

Of which

Ordinary

booklets

106 894 111 690 115 512 119 371 122 369 2.5 %

Of which Livrets

A et B (booklets) 149 446 152 140 153 727 155 020 153 425 -1.0 %

Of which

Housing Savings

accounts

1 769 1 761 1 648 1 535 1 422 -7.4 %

Of which

Housing Savings

plans

3 078 2 898 2 871 3 203 3 589 12.1 %

Of which other

saving accounts 3 332 3 962 4 252 4 432 4 600 3.8 %

Term Credit

account 9 946 11 224 12 219 11 400 10 550 -7.5 %

Saving vouchers 27 4 3 0 0 0

Total 467 145 483 485 495 940 509 016 517 199 1.6 %


This resulted in a banking rate of 81 %, which is significantly lower than the rate observed

in metropolitan France (124 %).

Table 7: Number of bank accounts per capita in New Caledonia

2011 2012 2013 2014 2015 Variation

2015/2014

Current accounts 0.77 0.79 0.80 0.80 0.81 1.6 %

Special saving accounts 1.05 1.07 1.08 1.06 1.04 -1.1 %



PE 593.803 I - 80

2011 2012 2013 2014 2015 Variation

2015/2014

Of which Ordinary booklets 1.02 1.04 1.05 1.02 1.01 -1.2 %

Term deposit accounts 0.04 0.04 0.05 0.04 0.04 -9.0 %

Total 1.86 1.90 1.93 1.89 1.89 -0.1 %


Similar results can be found in Saint-Pierre-and-Miquelon, where locally-established banks

managed 17 504 bank accounts in 2015, distributed as follows:

Table 8: Number of bank accounts in Saint-Pierre-and-Miquelon

2010 2011 2012 2013 2014 2015 Variation

2015/2014

Current accounts 8 269 7 846 7 514 7 480 7 532 7 588 0.7 %

Booklets 8 924 8 977 9 041 9 633 8 897 8 794 -1.2 %

Housing savings

accounts and

plans

117 120 151 188 282 466 65.2 %

Of which Housing

Savings accounts 7 12 14 13 17 19 11.8 %

Of which Housing

Savings plans 110 108 137 175 265 447 68.7 %

Term Credit

account 1 611 1 241 912 760 690 656 -4.9 %

Total 18 921 18 184 17 618 18 061 17 401 17 504 0.6 %



http://www.iedom.fr/saint-pierre-et-miquelon/banques/comptes-et-guichets-322.html



PE 593.803 I - 81

In summary, as indicated by the Institute d’Emission d’Outre-Mer, ‘The rate of banking of

the Pacific population is on average much lower than that of mainland France. It reaches

0.79 [accounts per capita] in New Caledonia, 0.74 in French Polynesia and 0.42 in Wallis-

and-Futuna, compared with 1.62 in mainland France’.165

Weak amounts of bank assets. Moreover, the amount of bank assets held in the OCTs is

relatively low, which means that money laundering activities cannot be significant.

For example, the average outstanding amount of a deposit account (all types of customers:

individuals, companies, etc.) stood at 1,412 thousand Pacific francs (11,832 euros) at the

end of the year 2015 in New Caledonia.166 In Saint-Pierre-and-Miquelon, this number

reached 9,403 euros, as shown in the table below.

Table 9: Average deposit account balance in Saint-Pierre-and-Miquelon

2010 2011 2012 2013 2014 2015 Variation

2015/2014

Current

accounts 9 290 8 550 9 680 10 186 9 283 9 403 1.3 %

Booklets 5 706 6 215 7 442 7 243 7 872 8 362 6.2 %

Housing savings

accounts and

plans

24 241 23 468 28 768 31 502 27 854 25 901 -7.0 %

Term Credit

account 31 086 37 723 37 760 46 846 50 030 48 619 -2.8 %


Finally, it must be noted that the amount of deposits is low in French Polynesia, as shown

in the graphics below. In particular, it must be noted that the total amount of deposits is

417,750 million Pacific francs (3.5 billion euros), for 271,800 inhabitants.

165 Institut d’Emission d’Outre-Mer, Panorama de l’activité bancaire dans les COM du Pacifique - Évolution

de l’activité bancaire de 2003 à 2013, June 2015.


http://www.iedom.fr/saint-pierre-et-miquelon/banques/comptes-et-guichets-322.html





PE 593.803 I - 82

Figure 2: Banking activity in French Polynesia


http://www.ieom.fr/polynesie-francaise/informations/



PE 593.803 I - 83

In New Caledonia, the total amount of deposits is equal to 580 billion Pacific franc (4.86

billion euros) for 268,000 inhabitants.167

3.4. Conclusions

Conclusion on laundering involving non-residents. These data show that the extent of

laundering in the French OCTs can only be small. And even if the number of accounts held

by non-residents is unknown, it is in practice difficult for them to open bank accounts from

which they engage in money laundering activities. In practice, many documents need to

be provided (data about their bank accounts in the country of origin, copies of latest salary

statements, presentation of a valid identity document, proofs of income and address.168

Conclusion on laundering involving in non-residents. Locally, the financial delinquency

that can be detected is small. And no significant money laundering activity is observed.

Without these facts constituting money laundering, criminal offences may, unfortunately,

be committed at the highest political level in the French OCTs. The symbolic case of Gaston

Flosse, former president of the Polynesian government, must be mentioned.169 But such

facts do not reflect the reality of the French OCTs, where financial offences remain

relatively limited in number.

An illustrative example of the particular situation of French OCTs in the fight against

money laundering: the case of the decree limiting the amounts that can be paid in cash

in French Polynesia. The situation of the OCTs with regard to the fight against money

laundering is thus ambiguous: the weakness of the controls (which is acknowledged)

corresponds to the relative importance of the infringements. Rather than a long theoretical

discourse, in order to be convinced it is sufficient to focus on the conditions under which a

decree intended to fight against money laundering in French Polynesia entered into force.

Published in August 2015, the purpose of this decree was to limit the amount of money

that could be settled in cash (119,300 Pacific francs, i.e. 1,000 euros). In an article on the

implementation of this measure, it was indicated that many employers would continue to

remunerate their employees in cash, and that this payment would change from a monthly

to a weekly basis to comply with the new regulations. In the same article, the difficulties

encountered by the many inhabitants of the islands who do not have bank accounts were

also pointed out. Finally, the author stressed the weakness of the controls on the

implementation of this measure: ‘The question is whether this decree will actually be

167 Institut d’Emission d’Outre-Mer, Panorama de l’activité bancaire dans les COM du Pacifique - Évolution


168 See for example the practical guides made for persons that want to establish in New Caledonia.

169 Gaston Flosse was sentenced to four years’ imprisonment (with suspension), a fine of 125,000

euros and a three-year sentence of ineligibility in a fictitious employment case (this sentence became

final on 23 July 2014, following a decision of the Court of Cassation). After the President of the

Republic refused to pardon him, the Justice Ministry asked the Constitutional Council, on 10

September 2014, to deprive him of his mandate as a senator. This deprivation was pronounced on 16

September 16 2014. He was convicted on other occasions for acts of embezzlement of public funds.



http://www.expat.com/fr/guide/oceanie/nouvelle-caledonie/140-ouvrir-un-compte-en-banque-en-nouvelle-caledonie.html


PE 593.803 I - 84

applied on the ground, and therefore whether agents of the local authority or of the state

will be responsible for controlling enterprises. Since the state has the competence for the

currency, the DGAE (local administration) is convinced that it is the IEOM (Institut

d’Emission d’Outre-Mer: national administration) that is in charge of this part. The Institute

explains that it is in charge of monetary policy, and not of controls, and redirects to the

DGAE and the tax administration. In the Tax Department, it is explained that their role is

not to check payments but to collect taxes, and that checks are more the responsibility of

the DGAE ... The loop is completed’.170

170 See ‘Aujourd’hui les paiements cash ne peuvent plus dépasser 119 300 Fcfp’, published on tahiti-

infos.com in September 2015.

http://www.tahiti-infos.com/Aujourd-hui-les-paiements-cash-ne-peuvent-plus-depasser-119-300-Fcfp_a135551.html



PE 593.803 I - 85

4. French OCTs and tax transparency

Summary and plan. Analysing the issue of tax transparency, the French National Audit

Office noted in 2013 that ‘Tax cooperation between mainland France and these territories

has, on the other hand, been marked by progress recently’.171 Since then, the latter has been

accentuated.

Following what has been seen in the previous chapters, the applicable transparency

standards are of the highest level (4.1.).

This being so, the lack of available public data on this subject is once again to be regretted

(4.2.).

However, this lack of data must not obscure the fact that France has a habit of cooperating

well with other states in the exchange of tax information and fiscal transparency.

Paradoxically, France fears, in the case of the OCTs, that it finds itself in a dissymmetrical

situation which is unfavourable to it (4.3.).

4.1. A willingness to ensure tax transparency respecting the

highest standards

Legal basis for tax transparency. Cooperation between the OCT tax administrations and

the metropolitan tax administration has several bases.

On the one hand, Article L. 114 of the French Code of Tax Procedures states that ‘The tax

administration may exchange information with the financial administrations of Saint-

Pierre-and-Miquelon, New Caledonia, French Polynesia, the Wallis-and-Futuna Islands

and the French Southern and Antarctic Territories and other local and regional authorities

of the French Republic governed by a specific tax system, and with states which have

concluded with France an administrative assistance agreement to combat the tax fraud and

tax evasion’.

On the other hand, various legislative provisions provide for the signature of agreements

between the French state and the French OCT with a view, inter alia, to organising the

exchange of tax information.

Paragraph I of Article LO 6214-4 of the French General Code of Local Authorities provides,

for example, that ‘2° St. Barthelemy shall transmit to the state all information relevant for

the application of its tax regulations and for the execution of the exchange of information

clauses provided for in the tax treaties concluded by France with other states or territories’.

Paragraph I bis of this Article indicates then that 'The detailed rules for the application of

Paragraph I are specified in an agreement concluded between the state and St. Barthelemy

with a view to preventing double taxation and combating tax evasion and avoidance'.




PE 593.803 I - 86

In the case of Saint-Pierre-and-Miquelon, Article LO 6414-1 of the same Code states, for its

part, that ‘V.-1. For the purposes of avoiding double taxation and preventing tax evasion,

an agreement between the state and the local authority determines the obligations of the

local authority to provide tax information. The local authority shall transmit to the state all

information relevant for the application of its regulations relating to taxes and duties and

for the execution of the exchange of information clauses provided for in tax treaties

concluded by France with other entities, other states or territories’.

For each French OCT, similar examples could be given.

Modalities for the implementation of tax transparency. With the exception of Wallis-and-

Futuna, all the French OCTs have entered into agreements for the exchange of information

with the central state and, in some cases, with other countries, with the aim of combating

fraud and tax evasion. In the case of Wallis-and-Futuna, the French National Audit Office

has rightly observed that ‘This situation results essentially from the inadequacy of its tax

system’.172 The latter does not include any direct taxes, so that no information could be

exchanged.

Content of agreements between the OCT and the central state. In practice, the

conventions binding the OCTs and the central state comply with OECD standards.

Sometimes they even go beyond.

In a French parliamentary report on agreements between the state and the local authorities

of Saint-Martin, St. Barthelemy and French Polynesia, it was stated that ‘the tax treaties

concluded with Mayotte, Saint-Pierre-and-Miquelon and New Caledonia already include

provisions on the exchange of information and assistance in recovery. Their application

does not raise any particular problems, according to the directorate of tax legislation’.173

These conventions have long been in compliance with current OECD standards.

This is also the case for agreements that were subsequently adopted at the beginning of the

year 2010. It is thus possible to read, with regard to agreements between the state and the

local authorities of Saint Martin, St. Barthelemy and French Polynesia, that ‘The three tax

cooperation agreements were negotiated on the basis of Articles 26 and 27 of the OECD

Model Tax Convention, which deal respectively with the exchange of tax information

between the taxing authorities of the contracting states and assistance to the recovery by

each of the contracting states for the benefit of the other state’.174

Moreover, it should be pointed out that these three agreements go further than those

provided for in the OECD model, in particular by offering the possibility for the state to


173 Didier Quentin (MP), Rapport sur la proposition de loi organique tendant à l’approbation d’accords entre

l’État et les collectivités territoriales de Saint-Martin, de Saint-Barthélemy et de Polynésie française,

Assemblée Nationale, No 3248, 16 March 2011, p. 11.





http://www.assemblee-nationale.fr/13/rapports/r3248.asp






PE 593.803 I - 87

monitor on-the-spot the reality of operations which have given right to tax exemptions in

metropolitan France. Similarly, the state may itself impose the taxation of persons settled

in St. Barthelemy but taxed as residents of the state. Ultimately, ‘these agreements therefore

contribute to the development of transparency in tax matters. By showing that the tax

authorities of overseas local authorities comply with the most demanding standards of the

OECD model tax treaty, France demonstrates its determination to be exemplary in

applying the principles defined by the OECD, at the request of the G20’.175

4.2. The regrettable lack of data on the implementation of tax

transparency in the French OCTs

Lack of reliable data on the implementation of the measures adopted. Again, however,

there is a lack of data on the implementation of measures to ensure fiscal transparency in

the French OCTs.

During the discussion of an organic law intended to approve agreements between the state

and the local authority of Saint-Martin, St. Barthelemy and French Polynesia, René Dosière,

Member of the Assemblée Nationale, indicated that ‘In the area of taxation, an impact

assessment would be particularly useful. The proof of this is the figures we have: our

rapporteur tells us that there are 1,000 French civil servants in Saint-Martin, while the

Senate speaks of 2,000; our rapporteur estimates the cost to the state of the agreement with

Saint Martin to two million euros when the Senate places it between one and two million

euros. We would like to have a safer assessment’.176

Then he added, with regard to the Conventions, that ‘they must be applicable: if the staff

of the tax administration is reduced, there will not be enough agents to check on-the-spot

how the tax exemptions apply. However, when one reads the reports of the National Audit

Office on tax exemptions in the overseas territories - I am thinking particularly of Wallis-

and-Futuna - there are some concerns’.177 Given the weakness of tax audits, which was

highlighted earlier (see paragraph 2.2.2.), these concerns appear to be legitimate.

4.3. An effective cooperation

The exemplarity of France underlined by the OECD. This being so, France is rightly

renowned for its exemplary tax transparency.

On this point, it should be noted that in the context of the OECD Global Forum on Fiscal

Transparency, France has been the subject of peer review. In the report published in 2013

















PE 593.803 I - 88

as a result of this peer review, the exemplarity of France was highlighted. In particular, the

administrations of other states receive a significant amount of information from French

services or French banks. And although some negative remarks were made (notably on the

deadlines for reply), none of them concerns the OCTs.178

Risk of asymmetry. Conversely, the French authorities and those of the OCTs are

concerned that the implementation of the agreements on tax transparency will lead to

dissymmetrical situations. For example, the report on the proposal for an organic law for

the approval of agreements between the state and the local authorities of Saint-Martin, St

Barthelemy and French Polynesia states that ‘If the three mutual assistance agreements

establish a very high degree of transparency in order to prevent tax avoidance and evasion

from the departments and the three overseas local authorities, the French example could

in fact lead to disadvantage those local authorities, which are required to provide

information to third States and territories without being able to benefit from their

cooperation’.179

4.4. Conclusion

With the exception of the lack of public data, France's tax transparency situation is

exemplary, whether it concerns OCT information or any other information. Summarising

the situation that could already be seen in 2013, the French National Office Audit had

indicated that ‘Conventions now offer the possibility for the state to monitor on-the-spot,

on a concerted basis, the reality of operations benefiting from a tax exemption in France

and the situation of persons located in these territories, without being domiciled there for

tax purposes. Thus, France is in a position to respond to the request of third states on the

tax situation of taxpayers resident in those territories’.180

178 OECD, Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Review France

2013: Combined: Phase 1 + Phase 2, Incorporating Phase 2 ratings, OECD Publishing, 2013.





http://www.eoi-tax.org/jurisdictions/FR







PE 593.803 I - 89

5. Conclusions: Lessons learned on controlling tax evasion,

countering money laundering and ensuring

transparency

The in-depth analysis of the French situation with regard to tax evasion, money laundering

and tax transparency shows that the French OCTs present little risk for the other Member

States of the European Union.

This absence of risk results from three factors:

- On the one hand, French OCTs are not fully autonomous and have no sovereignty.

In other words, these decentralised authorities are relatively controlled by the

central state, which can, depending on the circumstances, grant them more or less

autonomy. In the areas covered by this study, it is relatively weak.

- On the other hand, the rules which apply in the OCTs are very close to the

metropolitan regulations, and therefore to European regulations where they exist.

Coordination with mainland France is certain. And high standards are respected.

- Finally, neither the economic context nor the infrastructures encourage tax evasion

or laundering activities in the French OCTs. In particular, the banking sector is

insufficiently developed to allow local engagement in these reprehensible

practices.

It follows that the French OCTs can serve as a model for the OCTs of the other Member

States. While the idea is not to question the competence and autonomy of the latter, it

would perhaps be appropriate that, as in the French OCTs, regulations close to European

regulations and standards apply there in the field of the fight against money laundering

and of administrative cooperation.

Of course, improvements could be made to combat tax evasion and money laundering in

the French OCTs. In particular, the administrative departments responsible for carrying

out control operations could benefit from more resources. This would allow for more

controls and more data. At the same time, local professionals could be more aware of risks.


PE 593.803 I - 90

6. Bibliography

6.1. Official texts

French Constitution

French General Tax Code

French Code of Tax Procedures

French General Code of Local Authorities

French Monetary and Financial Code

Code des impôts de Polynésie

Code des impôts de la Nouvelle-Calédonie

Code local des impôts de Saint-Pierre-et-Miquelon

Code des contributions de Saint-Barthélemy

Convention fiscale France / Polynésie

Convention fiscale France / Nouvelle-Calédonie

Convention fiscale France / Saint-Pierre-et-Miquelon

Convention fiscale France / Saint-Barthélemy

Legifrance : application et applicabilité des textes outre-mer

6.2. Textbooks and articles

Olivier Gohin, Michel Degoffe, Alexandre Maitrot de la Motte and Charles-André Dubreuil, Droit des

collectivités territoriales, Editions Cujas, 2nd edition, 2015.

William Gilles, ‘La fiscalité à Wallis-et-Futuna. Entre Faiblesse, Paradoxe et Apparence’, In Xavier


hors série No XVIII, 2015, spec. pp. 46-47.

6.3. Official reports

Chambre territoriale des comptes de Polynésie française, Rapport d’observations définitives – Collectivité

de la Polynésie française – Gestion budgétaire et financière – exercices 2011 et suivants, 23 November 2015.

Cour des comptes, L’autonomie fiscale en Outre-Mer, November 2013.

Cour des comptes, Référé du premier président, 16 February 2017.

Direction Générale des Finances Publiques, Annuaire statistique, 2013.

Direction Générale des Finances Publiques, Annuaire statistique, 2014.

Direction Générale des Finances Publiques, Atlas Fiscal de la France.

FATF, Anti-Money Laundering and Combating the Financing of Terrorism. France, 25 February 2011.

Institut d’Emission d’Outre-Mer, Rapport Nouvelle Calédonie 2015.

Institut d’Emission d’Outre-Mer, Rapport Polynésie Française 2015.

Institut d’Emission d’Outre-Mer, Rapport Wallis-et-Futuna 2015.

Institut d’Emission d’Outre-Mer, Rapport Saint-Pierre-et-Miquelon 2015.

Institut d’Emission d’Outre-Mer, Rapport Saint-Barthélemy 2015.

Institut d’Emission d’Outre-Mer, Panorama de l’activité bancaire dans les COM du Pacifique - Évolution



https://www.legifrance.gouv.fr/affichCode.do?cidTexte=LEGITEXT000006069577&dateTexte=20170327






http://www.services-fiscaux975.fr/fr/9-documentation.html

http://www.comstbarth.fr/codes_collectivites.aspx

http://www.services-fiscaux975.fr/fr/9-documentation.html

https://www.legifrance.gouv.fr/Droit-francais/Guide-de-legistique/III.-Redaction-des-textes/3.6.-Application-et-applicabilite-des-textes-outre-mer




http://www.ccomptes.fr/Accueil/Publications/Publications/L-administration-centrale-du-ministere-des-Outre-mer



https://www.impots.gouv.fr/portail/files/media/stats/atlas_fiscal_fichedescriptive_6645.pdf


http://www.ieom.fr/nouvelle-caledonie/publications/rapports-annuels/

http://www.ieom.fr/polynesie-francaise/publications/rapports-annuels/

http://www.ieom.fr/wallis-et-futuna/publications/rapports-annuels/

http://www.iedom.fr/saint-pierre-et-miquelon/publications/rapports-annuels/

http://www.iedom.fr/saint-barthelemy/publications/rapports-annuels/





PE 593.803 I - 91

OECD, Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Review France

2013: Combined: Phase 1 + Phase 2, Incorporating Phase 2 ratings, 2013.

Tracfin, Rapport annuel d’activités Tracfin 2015.

6.4. French Parliament

Eric Bocquet, ‘La collectivité de Saint-Barthélemy doit bel et bien être considérée comme un paradis

fiscal’, 28 September 2015.

Didier Quentin, Rapport sur la proposition de loi organique tendant à l’approbation d’accords entre l’État et

les collectivités territoriales de Saint-Martin, de Saint-Barthélemy et de Polynésie française, Assemblée

Nationale, No 3248, 16 March 2011.

Sénat, Communication de M. Jean Bizet et audition de M. Michel Magras, sénateur de Saint-

Barthélemy - Modification du statut de Saint-Barthélemy, examen par la commission des affaires

européennes le 13/10/2010.

Sénat, Projet de loi de finances pour 2012 : Collectivités d'outre-mer, Nouvelle Calédonie et TAAF -

Avis n° 112 (2011-2012) de M. Christian COINTAT, fait au nom de la commission des lois, 17

November 2011.

6.5. Online articles

Sébastien Chauvin and Bruno Cousin, ‘Saint-Barthélemy, petit paradis pour milliardaires - Une île

française sans impôts’, Le Monde Diplomatique, January 2006.

Michel Collet, ‘Eclaircissement sur les fiscalités applicables à Saint-Barthélemy’, CMS Bureau Francis

Lefebvre, October 2010.

Matthieu Delahousse, ‘Panama Papers : ce vendeur de fruits et légumes qui intéresse la justice’, L’obs,

16 May 2016.

Olivier Grivat, ‘St-Barthélémy: la France a aussi son paradis fiscal’, 25 March 2012.

Laurent Guez, ‘Saint-Barth La drôle d'économie d'un paradis’, 22 July 2016.

Maïté Koda, Interview of Professor Bernard Castagnède, ‘Parler de paradis fiscal pour l'Outre-mer

français relève de la mythologie’, Outre Mer 1ère, 25 April 2013.

Nicolas Six, ‘Wallis-et-Futuna, petit bout de France où règnent trois rois’, Le Monde, 5 September 2014.

Jean-Marc Sylvestre, ‘Exil fiscal : Les destinations préférées des Français !’, 11 May 2013.

Jean-Marc Sylvestre, ‘Les paradis fiscaux pour les nouveaux pauvres de l’occident’, 2 November

2013.

‘Aujourd'hui les paiements cash ne peuvent plus dépasser 119 300 Fcfp’, published on tahiti-

infos.com, September 2015.

‘Prison ferme pour blanchiment d'argent dans une affaire d’ice’, published on tahiti-infos.com, 13 January 2014.



http://www.economie.gouv.fr/files/ra-2015-tracfin.pdf








http://www.senat.fr/rap/a11-112-3/a11-112-3.html






http://www.lesechos.fr/22/07/2016/LesEchosWeekEnd/00041-014-ECWE_saint-barth-la-drole-d-economie-d-un-paradis.htm



http://www.lemonde.fr/les-decodeurs/article/2014/09/05/wallis-et-futuna-un-archipel-francais-compose-de-trois-royaumes_4482851_4355770.html



http://www.tahiti-infos.com/Aujourd-hui-les-paiements-cash-ne-peuvent-plus-depasser-119-300-Fcfp_a135551.html

http://www.tahiti-infos.com/Prison-ferme-pour-blanchiment-d-argent-dans-une-affaire-d-ice_a118600.html


PE 593.803 I - 92



PE 593.803 II - 93

ANNEX II





(OCTs) of the Kingdom of the Netherlands, as defined in

Annex II of the Treaty on the Functioning of the European

Union (TFEU), and the relations of the Kingdom of the

Netherlands with those OCTs


PE 593.803 II - 94

AUTHORS

This study has been written by Prof. Dr H.E. Bröring, Prof. Dr O.O. Cherednychenko,

Prof. Dr H.G. Hoogers and G. Karapetian LL.M. (Department of Constitutional Law,

Administrative Law and Public Administration/Groningen Centre for European

Financial Services Law (GCEFSL), University of Groningen), at the request of the Ex-

Post Evaluation Unit of the Directorate for Impact Assessment and European Added

Value, within the Directorate General for Parliamentary Research Services (DG EPRS)

of the General Secretariat of the European Parliament.

CONTACT

University of Groningen

Faculty of Law

Department of Constitutional Law, Administrative Law and Public Administration

P.O. Box 716

9700 AS Groningen

The Netherlands

Tel.: + 31 50 363 56 74

Website: www.rug.nl/rechten/organization/vakgroepen/sbb/

RESPONSIBLE ADMINISTRATOR: Dr Isabelle Ioannides, Ex-Post Evaluation Unit To contact the Unit, please email: [email protected]

LINGUISTIC VERSIONS

Original: EN








a copy.

Manuscript completed in January 2017.


http://www.rug.nl/rechten/organization/vakgroepen/sbb/




PE 593.803 II - 95

CONTENTS

Executive Summary ..................................................................................................II-97

Acronyms ................................................................................................................ II-100

1. Chapter I: Introduction ...................................................................................... II-101

1.1 Background ............................................................................................................ II-101 1.2 Objectives ............................................................................................................... II-102 1.3 Key Concepts ......................................................................................................... II-102 1.4 Methodology ......................................................................................................... II-103 1.5 Structure ................................................................................................................. II-104

Chapter II: The OCTs of the Kingdom of the Netherlands within a Multi-

Level System of Governance ............................................................ II-106 2.1 Historical, Geographical and Economic Context .............................................. II-106 2.2 The Governance Levels within the Kingdom of the Netherlands .................. II-110 2.3 The Caribbean Countries and the Influence of Dutch and European Law ... II-112 2.4 Political Sensitivity and the Use of Soft Tools ................................................... II-112 2.5 Small Scale Societies ............................................................................................. II-113 2.6 Concluding Remarks ............................................................................................ II-114

Chapter III: The European Union and the OCTs of the Kingdom of the

Netherlands ....................................................................................... II-115

3.1 The Application of the EU Treaties in the OCTs of the Kingdom .................. II-115 3.2 The Overseas Association Decision and Money Laundering, Tax Evasion and

Tax Transparency in the OCTs of the Kingdom ............................................... II-116 3.3 The Extended Application of EU Law in the OCTs of the Kingdom under the

CJEU Case Law...................................................................................................... II-119 3.4 Concluding Remarks ............................................................................................ II-121

Chapter IV: The Kingdom of the Netherlands and the OCTs ........................ II-122

4.1 General Characteristics of the Charter for the Kingdom ................................. II-122 4.2 The Kingdom’s Constitutional Make-Up .......................................................... II-122 4.3 The Kingdom’s Powers ........................................................................................ II-124 4.4 Financial Oversight by the Kingdom in the Autonomous Caribbean

Countries ............................................................................................................... II-124 4.5 Concluding Remarks ............................................................................................ II-126

Chapter V: Financial oversight in the caribbean countries of the Kingdom of

the Netherlands ................................................................................... II-127 5.1 Overseas Laws and Central Banks ..................................................................... II-127 5.2 Cooperation among the Countries of the Kingdom: The St Maarten Integrity

Chamber Case ........................................................................................................ II-130 5.3 Concluding Remarks ............................................................................................ II-132


PE 593.803 II - 96

Chapter VI: Financial Oversight in the Caribbean Netherlands ................... II-133

6.1 The Position of the Caribbean Territories within the Country of the

Netherlands……………………………………………………………………… II-133 6.2 Financial Markets .................................................................................................. II-134 6.3 Money Laundering ............................................................................................... II-136 6.4 Taxation .................................................................................................................. II-137 6.5 Implementation and Enforcement ...................................................................... II-138 6.6 Concluding Remarks ............................................................................................ II-139

Chapter VII: Key Findings and the Way Forward ............................................ II-141

Bibliography ............................................................................................................ II-143

List of Figures Figure 1: The Current Map of the Kingdom of the Netherlands and its Countries ...... II-108

Figure 2: The OCTs of the Kingdom of the Netherlands in a Multi-Level Governance

System ..................................................................................................................... II-110

Figure 3: The Powers of the European Commission with Respect to Protecting the Financial

Interests of the EU in the OCTs under the OAD .............................................. II-118

Figure 4: The Application of EU Law in the OCTs According to the Case Law of the

CJEU ........................................................................................................................ II-120

Figure 5: Financial Supervision in the OCTs of the Kingdom of the Netherlands ....... II-129

List of Tables Table 1: The OCTs of the Kingdom of the Netherlands: Some Geographical and Economic

Data ............................................................................................................................ II-109

List of Boxes Box 1: Financial Supervision Legislation of Bonaire, Statia and Saba ............................ II-136

Box 2: Anti-Money Laundering Legislation of Bonaire, Statia and Saba ....................... II-137



PE 593.803 II - 97

Executive Summary

Background

The recent global financial crisis and the disclosure of the Panama Papers added a sense of

urgency to the need for tackling the issue of the so-called offshore tax havens, including

those in the Overseas Countries and Territories (OCTs) of the EU Member States. The latter

are countries and territories that have a special relationship with one of the four Member

States (Denmark, France, the Kingdom of the Netherlands and the United Kingdom). Many

of the OCTs are considered infamous because of their secretive offshore tax regimes.

The growing concern with tax havens worldwide gives rise to questions about the possible

role for the EU and its Member States in tackling offshore practices in the EU Member

States’ OCTs. On the one hand, the EU is increasingly engaging with the OCTs, in

particular in the area of financial services and taxation, recognising the need for

cooperation in this field. On the other hand, many questions still exist concerning the

possible role for the Member States in this domain. While the EU Treaties do not contain

any specific legal obligation for the Member States to ensure the application of relevant EU

law in their OCTs, the special relationship between some Member States and OCTs is often

put forward as a justification for the Member States’ political responsibility in this area. Yet

the extent to which the EU and/or Member States can play an effective role in the fight

against money laundering and tax evasion in the OCTs depends on the particular legal,

institutional and political framework governing the relations between them.

Objectives

This study, commissioned by the European Parliament Committee of Inquiry into Money

Laundering, Tax Avoidance and Tax Evasion (PANA), explores the legal, political and

institutional framework on offshore practices related to money laundering, tax evasion and

tax transparency in the OCTs of the Kingdom of the Netherlands, i.e. Aruba, Curaçao, St

Maarten, Bonaire, Statia and Saba. The overall aim of the study is to contribute to a better

understanding of the extent to which the EU and the Kingdom of the Netherlands, as an

EU Member State, can exert influence on the OCTs in the fight against offshore practices.

More specifically, the study has four objectives:

To analyse the legal, institutional and political framework for the relationship

between the EU, the Kingdom of the Netherlands and its OCTs;

To assess to what extent this framework allows the EU and the Kingdom of the

Netherlands to exert influence on the OCTs of the Kingdom in combating money

laundering and tax evasion and in enhancing tax transparency;

To provide an overview of the most relevant legislation with relevance to money

laundering, tax evasion and tax transparency which applies in the OCTs of the

Kingdom of the Netherlands and to make a preliminary assessment of the

effectiveness of this legislation in practice;

To identify options for improving the legal, institutional and political framework with

a view to combatting money laundering and tax evasion and enhancing tax

transparency in the OCTs of the Kingdom of the Netherlands.


PE 593.803 II - 98

The key findings and recommendations from this analysis are presented below.

Key findings and the way forward

The OCTs of the Kingdom of the Netherlands operate within a complex multi-level

system of governance consisting of four levels: (1) the EU level; (2) the level of the

Kingdom of the Netherlands comprised of the Country of the Netherlands and

three Caribbean countries (Aruba, Curaçao, St Maarten); (3) the level of the

Caribbean countries of the Kingdom of the Netherlands (Aruba, Curaçao and St

Maarten); and (4) the level of the Caribbean territories of the Country of the

Netherlands (Bonaire, Statia and Saba), also known as the Caribbean Netherlands.

Each level is characterised by its own constitutional set up which determines the

relationship between the EU, the Kingdom of the Netherlands, the Country of the

Netherlands and the OCTs of the Kingdom based on the division of competences.

Following the recent developments in EU overseas law, the EU can play an

increasingly important role in fighting offshore practices in the OCTs of the

Kingdom of the Netherlands in cooperation with such territories. In particular, the

recent OAD equips the EU not only with soft tools but also with hard instruments,

such as the power of the European Commission to withdraw or reduce financial

aid to the OCTs that could allow the EU to impact on the OCTs when it comes to

combating money laundering and tax evasion and enhancing tax transparency.

The status of the three Caribbean countries (Aruba, Curaçao and St Maarten)

within the Kingdom of the Netherlands fundamentally differs from that of the

three Caribbean territories (Bonaire, Statia and Saba). While the former are

autonomous countries within the Kingdom of the Netherlands, the latter form part

of the Country of the Netherlands and are therefore subject to Dutch law and

oversight by the Dutch institutions. This distinction is relevant for determining the

extent to which the Kingdom and the Country of the Netherlands can interfere in

the affairs of these OCTs when it comes to offshore practices.

In the areas related to financial regulation and supervision, as well as taxation, the

powers of the Kingdom of the Netherlands with respect to the autonomous

Caribbean countries of the Kingdom are rather limited. This makes it hard for the

Kingdom to exert any significant influence on these OCTs in the fight against

offshore practices. The situation is further complicated by an uneasy relationship

between the Caribbean countries in question, on the one hand, and the Kingdom

and the Country of the Netherlands, on the other, given their colonial past and the

small scale of societies concerned.

In contrast, the Caribbean territories form part of the Country of the Netherlands

and are therefore subject to Dutch law and oversight by the Dutch institutions. As

a result, the Dutch government at the level of the Country of the Netherlands has

significant possibilities to exert pressure on the Caribbean territories in matters

relating to money laundering, tax evasion and tax transparency.

All six OCTs of the Kingdom of the Netherlands have generally adopted rather

modern legislation pertaining to money laundering, tax evasion and tax

transparency in accordance with the relevant international and European

standards. However, the key problem faced by each OCT of the Kingdom to a



PE 593.803 II - 99

greater or lesser extent is discrepancy between the law on the books (the adopted

law) and the law in action (implementation and enforcement of the law). The

effectiveness of legislation in the autonomous Caribbean countries of the Kingdom

is undermined by two key factors: (a) structural weaknesses caused by poor

implementation of good governance principles; and (b) functional weaknesses

related to the insufficient capacity of the relevant authorities, such as a shortage of

financial and human resources and insufficient knowledge and experience.

Notably, the gap between the law on the books and the law in action is much

smaller when it comes to the financial markets and taxation in the Caribbean

territories where the implementation and enforcement of relevant legislation are

centralised at the level of the Country of the Netherlands.

Improving the effectiveness of the existing laws in the OCTs is crucial to the fight

against offshore practices. Given the growing reach of EU overseas law, the EU

institutions could play a particularly important role in addressing the above-

mentioned problems in the autonomous Caribbean countries of the Kingdom with

respect to which the Kingdom itself has only limited possibilities to intervene. The

Country of the Netherlands in turn could play a major role in ensuring effective

implementation and enforcement of relevant legislation in the Caribbean

territories, which form part of this country.


PE 593.803 II - 100

Acronyms

CARICOM Caribbean Community

CFATF Caribbean Financial Action Task Force CJEU Court of Justice of the European Union ECHR European Convention on Human Rights and Fundamental

Freedoms

EU European Union FATF Financial Action Task Force ICCPR International Covenant on Civil and Political Rights OAD Overseas Association Decision OCTs Overseas Countries and Territories OLAF European Anti-fraud Office

TEU Treaty on the European Union TFEU Treaty on the Functioning of the European Union



PE 593.803 II - 101

Chapter I: Introduction

This study explores the legal, political and institutional framework on offshore practices

related to money laundering, tax evasion and tax transparency in the Overseas Countries

and Territories (OCTs) of the Kingdom of the Netherlands, i.e. Aruba, Curaçao, St Maarten,

Bonaire, Statia (St Eustatius) and Saba.

Background

In April 2016, the International Consortium of Investigative Journalists, together with other

partners from around the world, revealed more than 200 000 offshore entities connected to

individuals from more than 200 countries and territories, including many EU Member

States among which France, the Kingdom of the Netherlands and the United Kingdom.

These revelations, known as the ‘Panama Papers’, originate from a massive leak of offshore

financial records of a Panama-based law firm, Mossack Fonseca. The Panama Papers

exposed numerous ways of exploiting secretive offshore tax regimes in order to hide the

true ownership or origins held by offshore entities. Such entities have reportedly been

widely used for money laundering, tax evasion and avoidance purposes.

The recent global financial crisis and the disclosure of the Panama Papers added a sense of

urgency to the need for tackling the issue of the so-called offshore tax havens, including

those in the EU Member States’ OCTs. The latter are countries and territories that have a

special relationship with one of the four Member States (Denmark, France, the Kingdom

of the Netherlands and the United Kingdom). Such countries and territories deserve

special attention, given the fact that many of them are considered infamous because of their

secretive offshore tax regimes. For example, according to the recent study by Oxfam (an

international confederation of 20 NGOs fighting against poverty around the globe), several

UK OCTs are among the world’s worst tax havens.181 In particular, the Bermuda and the

Cayman islands figure prominently on Oxfam’s list of top 15 corporate tax havens,

occupying the first and second position, respectively.182 These OCTs earned their place on

the Oxfam’s list because they facilitate the most extreme forms of corporate tax avoidance,

driving the race to the bottom in corporate taxation. While the OCTs of the Kingdom of the

Netherlands, which are the focus of this study, do not appear on Oxfam’s list, remarkably,

the Kingdom of the Netherlands itself has been placed at the 3rd position.183 The fact that

many offshore practices facilitating tax avoidance, in particular in the European part of the

Country of the Netherlands,184 are currently not illegal as such, adds extra complexity to

dealing with them.

The growing concern about tax havens worldwide gives rise to questions about the

possible role for the EU and its Member States in tackling offshore practices in the EU

Member States’ OCTs. On the one hand, the EU is increasingly engaging with the OCTs, in

181 Oxfam, Tax Battles: The Dangerous Global Race to the Bottom on Corporate Tax, Policy Paper, 12

December 2012.

182 Ibid., p. 4.

183 Ibid., p. 4.

184 On the structure of the Kingdom of the Netherlands, see Chapters 2 and 3.

https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/bp-race-to-bottom-corporate-tax-121216-en.pdf


PE 593.803 II - 102

particular in the area of financial services and taxation, recognising the need for

cooperation in this field.185 On the other hand, many questions still exist concerning the

possible role for the Member States in this domain. While the EU Treaties do not contain

any specific legal obligation for the Member States to ensure the application of relevant EU

law in their OCTs, the special relationship between some Member States and OCTs is often

put forward as a justification for the Member States’ political responsibility in this area. Yet

the extent to which the EU and/or Member States can play an effective role in the fight

against money laundering and tax evasion in the OCTs depends on the particular legal,

institutional and political framework governing the relations between them.

Objectives

Against this background, the overall aim of this study is to contribute to a better

understanding of the extent to which the EU and the Kingdom of the Netherlands, as an

EU Member State, can exert influence on the OCTs in the fight against offshore practices.

More specifically, the study has four objectives:

To analyse the legal, institutional and political framework for the relationship

between the EU, the Kingdom of the Netherlands and its OCTs;

To assess to what extent this framework allows the EU and the Kingdom of the

Netherlands to exert influence on the OCTs of the Kingdom in combating money

laundering and tax evasion and in enhancing tax transparency;

To provide an overview of the most relevant legislation related to money laundering,

tax evasion and tax transparency that applies in the OCTs of the Kingdom of the

Netherlands and to make a preliminary assessment of the effectiveness of this

legislation in practice;

To identify options for improving the legal, institutional and political framework with

a view to combatting money laundering and tax evasion and enhancing tax

transparency in the OCTs of the Kingdom of the Netherlands.

Key Concepts

For the purposes of this study, the Kingdom of the Netherlands is a State which is a

Member of the European Union and which comprises four autonomous countries (i.e. the

Country of the Netherlands and three Caribbean countries which have the OCT status –

the Country of Aruba, the Country of Curaçao and the Country of St Maarten). The

Country of the Netherlands is an autonomous country within the Kingdom of the

Netherlands which consists of the European part (the so-called European Netherlands) and

the Caribbean part (the so-called Caribbean Netherlands). The Caribbean Netherlands in

turn includes the other three OCTs of the Kingdom of the Netherlands, i.e. Bonaire, Statia

and Saba. The OCTs of the Kingdom of the Netherlands are thus six overseas countries and

territories which have a special relationship with the Kingdom of the Netherlands and

which, within the current constitutional set up of the Kingdom, fall into one of the two

categories: 1) the Caribbean countries of the Kingdom of the Netherlands (i.e. Aruba,

Curaçao and St Maarten) and 2) the Caribbean territories of the Country of the Netherlands

(i.e. Bonaire, Statia and Saba).

185 E.g. COUNCIL DECISION 2013/755/EU of 25 November 2013 on the association of the overseas

countries and territories with the European Union (‘Overseas Association Decision’), OJ EU L 344/1.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32013D0755

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32013D0755



PE 593.803 II - 103

In addition, these countries and territories enjoy the OCT status under EU law.186 Apart

from the OCT status, EU law also recognises two other main categories of the overseas

territories of the EU Member States: an Outermost Region (OR) and Territories sui generis

whose relationship with the EU is governed by a plethora of ad hoc arrangements and

which do not fall within the OCT or OR category.187 Although the overseas territories of

the Kingdom of the Netherlands in question currently all have the OCT status, as will be

explained in Chapter II, this overall classification of overseas territories is relevant to

understanding the historical and political context surrounding the relationship of the OCTs

of the Kingdom with the EU.

Following conventional wisdom, the study has also proceeded on the basis of the following

general definitions of the three key concepts involved therein. ‘Money laundering’ is the

term used for a number of acts involving processing the proceeds of crime with a view to

concealing their illegal origin and bringing them back into the legal economy. It should be

recalled in this context that the Financial Action Task Force (FATF) has recommended that

countries criminalise money laundering and ‘apply the crime of money laundering to all

serious offences with a view to including the widest range of predicate offences’.188 ‘Tax

evasion’ has been defined as an illegal act of evading taxes by concealing income, earned

either legally or illegally, from detection and collection by the tax authorities. Tax evasion

should be distinguished from ‘tax avoidance’, which refers to using the tax regimes to one’s

own advantage to reduce one’s tax burden. In contrast to money laundering and tax

evasion, which are illegal activities, tax avoidance is generally not illegal as such but may

nevertheless be economically damaging to the affected countries. Tax transparency is

understood in a broad sense covering the communication of a company’s approach to tax

planning and compliance with tax regulations, as well as the amount of tax it pays.

Reporting is key to ensuring tax transparency.

Methodology

In order to realise the stated research objectives, the study will primarily apply well-

established legal methods. In particular, the following sources will be subject to an in-depth

systematic analysis: relevant EU and national legislative instruments; legislative history;

policy documents; administrative practice; case-law of the Court of Justice of the European

Union (CJEU) and domestic courts; as well as academic literature.

It is beyond the scope of this study to provide a complete picture and in-depth analysis of

the OCT’s legislation pertaining to money laundering, tax evasion and tax transparency.

186 As will be explained in Chapter II, below, the list of OCTs in Annex II to the Treaty on the

Functioning of the European Union (TFEU) is outdated following the 2010 constitutional reform of

the Kingdom of the Netherlands.

187 Cf. D. Kochenov, The EU and the Overseas: Outermost Regions, Overseas Countries and

Territories Associated with the Union, and Territories Sui Generis, in D. Kochenov (ed.), The EU and

the Overseas: Outermost Regions, Overseas Countries and Territories Associated with the Union, and

Territories Sui Generis, Kluwer Law International, The Hague, 2011, p. 12.

188 FATF, International Standards of Combating Money Laundering & the Financing of Terrorism &

Proliferation: The FATF Recommendations, February 2012 (as updated in October 2015), para. B.3.


PE 593.803 II - 104

Only the most important pieces of legislation representative of each of the two groups of

the OCTs identified in section 1.3 above (i.e. Caribbean countries of the Kingdom of the

Netherlands and Caribbean territories of the Country of the Netherlands) will be

mentioned.

In addition, the analysis will consider relevant empirical studies carried out by or for

governmental and non-governmental institutions, in particular the governments of the

Kingdom of the Netherlands and the Country of the Netherlands, that shed light on the

effectiveness of the OCT’s legal and institutional framework in combating money

laundering and tax evasion and ensuring tax transparency. These include, inter alia, the

reports prepared by the Commission Spies;189 Winter, Bröring and others;190 the General

Audit Board (Algemene Rekenkamer) of St Maarten;191 the Commission on the Integrity of

Public Administration (Commissie Integriteit Openbaar Bestuur);192 and

PriceWaterhouseCoopers.193 The publicly available studies demonstrate that the issue in

question has been studied in a particularly extensive manner in relation to the Caribbean

territories of the Country of the Netherlands (Bonaire, Statia and Saba). The above analysis

will allow us: to identify the possibilities for and limits of action that the EU and the

Kingdom of the Netherlands may take in relation to the OCTs of the Kingdom; to

understand the problems faced by these OCTs in the fight against offshore practices; and

to present options for improvement.

Structure

The structure of the study will reflect the multi-level governance system within which the

OCTs of the Kingdom of the Netherlands operate. Chapter II will first explore this system

in more detail, providing a general overview of the powers available for the EU, the

Kingdom of the Netherlands, the Country of the Netherlands and the OCTs of the

Kingdom themselves at each level of governance. This Chapter will also explain the context

in which the multi-level system of governance operates.

Building on this general framework, subsequent chapters will discuss each of the four level

of governance in more detail:

- Chapter III will address the role of the EU in combating money laundering and tax

evasion and enhancing tax transparency in the OCTs (Level 1). This Chapter will

189 Commissie Spies, Vijf jaar verbonden. Bonaire, Sint Eustatius, Saba en Europees Nederland. Rapport van

de commissie evaluatie uitwerking van de nieuwe staatkundige structuur Caribisch Nederland, The Hague,

12 October 2015. For the conclusion of this study in English, see Joined Together for Five Years: Bonaire,

Sint Eustatius, Saba and the European Netherlands.

190 H.B. Winter, H.E. Bröring et al, Vijf jaar Caribisch Nederland. De werking van wetgeving, Groningen

2015. For the summary in English, see Summary Five Years of the Caribbean Netherlands: Working of the

Legislation.

191 Algemene Rekenkamer, Nulmeting Sint Maarten: Stand van zaken institutionele integriteitszorg,

March 2014.

192 Commissie Integer openbaar bestuur, Doing the right things right, 12 July 2014.

193 PriceWaterhouseCoopers, Integrity Inquiry into the functioning of the Government of Sint Maarten,

PriceWaterhouseCoopers, 2014.

http://kennisopenbaarbestuur.nl/media/210276/Rapport-Evaluatiecommissie-Caribisch-Nederland-Vijf-jaar-verbonden.pdf


http://kennisopenbaarbestuur.nl/media/211723/Joined-together-for-five-years-Bonaire-St-Eustatius-Saba-and-the-European-Netherlands-conclusions-.pdf


http://www.rug.nl/research/portal/files/25858344/150915_Vijf_jaar_Caribisch_Nederland_De_werking_van_wetgeving.pdf

http://kennisopenbaarbestuur.nl/media/211672/Five-years-of-the-Caribbean-Netherlands-Working-of-Legislation-Summary-.pdf


http://www.comitekoninkrijksrelaties.org/wp-content/uploads/2015/06/Doing-the-right-things-right-definitieve-versie-120714.pdf

http://qracao.com/docs/Integrity_Inquiry_into_the_Functioning_of_the_Government_of_Sint_Maarten.pdf



PE 593.803 II - 105

demonstrate the potential for EU law and EU institutions to play an increasingly

important role in this area.

- Chapter IV will discuss the respective powers of the Kingdom of the Netherlands

with respect to its OCTs (Level 2). This Chapter will show major limits of the

Kingdom’s action in its autonomous Caribbean countries (Aruba, Curaçao and St

Maarten) with a view to fighting offshore practices.

- Chapters V and VI in turn will throw some light on the legal, institutional and

political framework on offshore practices in the Caribbean countries of the Kingdom

of the Netherlands (Aruba, Curaçao and St Maarten) (Level 3) and the Caribbean

territories of the Country of the Netherlands (Bonaire, Statia and Saba) (Level 4),

respectively.

It should be noted at the outset that the case of the Caribbean countries differs significantly

from that of the Caribbean territories. As mentioned above, the former are autonomous

countries within the Kingdom of the Netherlands with the Kingdom having only limited

powers to intervene in their affairs. In contrast, the latter form part of the Country of the

Netherlands and are therefore subject to Dutch law and oversight by the Dutch institutions.

This important difference between the position of the Caribbean countries and that of the

Caribbean territories within the Kingdom of the Netherlands will be reflected in the

structure and content of Chapters V and VI. Chapter V will not only highlight relevant

legislation, but it will also take a closer look at the institutional framework governing

financial supervision in the three autonomous Caribbean countries and show the

complexity involved in ensuring effective cooperation between the Caribbean countries

and the Country of the Netherlands. Chapter VI in turn will focus primarily on relevant

legislation in the Caribbean territories of the Country of the Netherlands, in particular

insofar as it differs from that of the European Netherlands. Both Chapters V and VI will

also shed some light on the effectiveness of this legislation in practice.

Finally, Chapter VII will present key findings and outline the way forward.


PE 593.803 II - 106

Chapter II: The OCTs of the Kingdom of the Netherlands

within a Multi-Level System of Governance

Given that the OCTs of the Kingdom of the Netherlands operate within the multi-level

governance system consisting not only of the level of the Kingdom but also that of the EU,

this Chapter will take a closer look at this system. In particular, it will provide a general

overview of the powers at each level of governance available respectively to:

- the EU;

- the Kingdom of the Netherlands;

- the countries of the Kingdom (including the Country of the Netherlands and

three OCTs of the Kingdom, i.e. the Country of Aruba, the Country of Curaçao

and the Country of St Maarten); and

- the Country of the Netherlands itself (including the other three OCTs of the

Kingdom, i.e. Bonaire, Statia and Saba (the so-called Caribbean Netherlands)).

In addition, this Chapter will also explain the historical, geographical, economic and

political context in which the multi-level system of governance operates.

Before we proceed with this analysis, one important clarification should be made

concerning the categorisation of OCTs in the Treaty of the European Union (TEU).

According to Article 52 TEU, the Treaties are applicable to the Kingdom of the

Netherlands. Article 355(2) of the Treaty on the Functioning of the European Union (TFEU)

in turn states that in addition to the provisions of Article 52 TEU relating to the territorial

scope of the Treaties, the special arrangements for association set out in Part IV of the TFEU

shall apply to the overseas countries and territories listed in Annex II.

However, Annex II to the TFEU is outdated in so far as the Netherlands Antilles no longer

exists following the 2010 constitutional reform of the Kingdom of the Netherlands to be

discussed below. While the abolishment of the Netherlands Antilles in the course of this

reform was within the competence of the Kingdom of the Netherlands, it did not alter the

OCT status of the Caribbean countries and territories of the Kingdom of the Netherlands

under EU law.

2.1 Historical, Geographical and Economic Context

Until 10 October 2010 the Kingdom of the Netherlands was composed of three countries:

the Country of the Netherlands (in Europe), the Country of Aruba (in the Caribbean) and

the Country of the Netherlands Antilles (in the Caribbean). The Country of the Netherlands

Antilles in turn embraced five islands: Curaçao, St Maarten, Bonaire, Statia and Saba. This

governing structure of the Kingdom of the Netherlands has been substantially amended in

the course of the 2010 constitutional reform. Since 10 October 2010, the Kingdom of the

Netherlands consists of four countries: the Country of the Netherlands (comprising the

European Netherlands and the Caribbean Netherlands) and three Caribbean countries –

the Country of Aruba, the Country of Curaçao and the Country of St Maarten.

Several reasons lie behind this restructuring of the Kingdom of the Netherlands. Firstly,

the reform was informed by geographic considerations: there was a linear distance of over

900 km or 560 miles between the Windward (St Maarten, Statia and Saba) and the Leeward



PE 593.803 II - 107

islands (Curaçao and Bonaire) that comprised the former Country of the Netherlands

Antilles. Secondly, the latter lacked political and cultural cohesion. In the Windward

Caribbean, for example, the English language is dominant, while in the Leeward Caribbean

most inhabitants speak Papiamento (or Papiomentu). A relatively large island of St

Maarten wanted to opt out of the Netherlands Antilles because it no longer accepted to be

governed by ‘Willemstad’ (the residence of the government of the Netherlands Antilles on

Curaçao).194 St Maarten preferred the status of an autonomous country within the

Kingdom, just as the one acquired by Aruba in 1986 (‘status aparte’). A similar wish was

also expressed by Curaçao.

Against this background, the Netherlands Antilles were abolished and two new countries

emerged from it - St Maarten and Curaçao. Initially, it was not clear what this constitutional

reform meant for the position of the three remaining islands of the former Netherlands

Antilles – Bonaire, Statia and Saba. Without intending to be disrespectful, one could say

that these small islands were leftovers. In the end, Bonaire, Statia and Saba became part of

the Country of the Netherlands. As a result, as the current map of the Kingdom of the

Netherlands presented in Figure 1 below shows, nowadays the territory of the Country of

the Netherlands extends from Europe to the Caribbean.

194 This appears to resonate with the deep-seated sentiments dating back to the old times when St

Maarten was a subordinate island of the colony Curaçao.


PE 593.803 II - 108

Source: Authors’ elaboration.

In addition, the governance within the Kingdom of the Netherlands has a European

dimension given that the Kingdom is a Member of the European Union. The Caribbean

territories of the Kingdom of the Netherlands always had the status of OCT and not that

of Outermost Region. In the initial phase of the restructuring of the Netherlands Antilles

much discussion took place on what kind of relationship between the Caribbean countries

and territories of the Kingdom of the Netherlands and the European Union is preferable.

In particular, Aruba preferred the Outermost Region status. However, given that it can be

problematic for the Caribbean countries and territories of the Kingdom to meet all EU

demands, it was ultimately decided to keep their OCT status.195

Table 1 below presents some basic geographical and economic data on the OCTs of the

Kingdom of the Netherlands. In particular, it shows that all six OCTs of the Kingdom

strongly depend on tourism. The table also includes the indicative amounts of EU financial

aid over the period 2014-2010 and their proposed concentration within the OCT economies.

As will be shown in Chapter III below, financial aid can be an important instrument in the

195 See H.E. Bröring, D. Kochenov, H.G. Hoogers, J.H. Jans (eds), Schurende rechtsordes. Over de

Europese Unie, het Koninkrijk en zijn Caribische gebieden, Europa Law Publishing, Groningen, 2008.

Figure 1: The Current Map of the Kingdom of the Netherlands and its Countries



PE 593.803 II - 109

hands of the European Commission in exerting influence on the OCTs of the Kingdom of

the Netherlands in the fight against offshore practices.

Table 1: The OCTs of the Kingdom of the Netherlands: Some Geographical and

Economic Data

OCTs of the Kingdom of

the Netherlands

Territory Population

196 GDP per capita

Key economic

sectors

EU financial aid over

2014-2020 (indicative)

Proposed sector of

concentration for EU

financial aid197

Country of Aruba

179 km² 110 309 (2016)

28.924 USD (2014)

Tourism €13.05 million

Education

Country of Curaçao

444 km² 158 986 (2016)

22.619 USD (2012)

Tourism, Oil

Refinery

€16.95 million

Renewable energy

Country of St Maarten

34 km² 39 410 (2016)

15.400 USD (2008)

Tourism €7million Water and sanitation

Bonaire 294 km² 19 408 (2016)

21.900 USD (2015

Tourism €3.95

million

Social Development -

Youth

Statia 32 km² 3 193 (2015)

26.300 USD (2012)

Tourism, Oil

Storage Terminal

2.45 million EUR

Energy

Saba 13 km² 1 947 (2015)

21.400 USD (2012)

Tourism, Medical School

3.55 million Renewable

energy


196 Bonaire, Statia and Saba: Centraal Bureau voor de Statistiek, Aruba: Central Bureau of Statistics

Aruba, Curaçao: Central Bureau of Statistics Curaçao, St. Maarten: Department of Statistics Sint

Maarten.

197 Ibid.

https://www.cbs.nl/nl-nl

http://cbs.aw/wp/

http://cbs.aw/wp/

http://www.cbs.cw/

http://stat.gov.sx/

http://stat.gov.sx/


PE 593.803 II - 110

2.2 The Governance Levels within the Kingdom of the Netherlands

The system of multilevel governance within which the OCTs of the Kingdom of the

Netherlands currently operate is reflected in the schematic overview in Figure 2 below.

Figure 2: The OCTs of the Kingdom of the Netherlands in a Multi-Level Governance

System


As the diagram in Figure 2 illustrates, there are generally four governance levels of

relevance to the OCTs of the Kingdom of the Netherlands:

(1) The European Union. The Kingdom of the Netherlands is a Member of the European

Union. EU law is only fully applicable in the European part of the Country of the

Netherlands, i.e. the European Netherlands. In particular, the European Commission

EU

Kingdom of The Netherlands

Country of The Netherlands

The European Netherlands

Bonaire

OCT

Statia

OCT

Saba

OCT

Country of Aruba

OCT

Country of Curaçao

OCT

Country of St Maarten

OCT

I

II

Chapter 3

Chapter 4

Chapter 5

Chapter 6

I Member of the EU II EU-law fully applicable

The Caribbean Netherlands



PE 593.803 II - 111

has the power to start infringement proceedings against the Kingdom of the

Netherlands for failure to ensure compliance with EU law in the European

Netherlands. Furthermore, national courts also play an important role in the

enforcement of EU law. The impact of EU law is generally weaker in the OCTs of the

Kingdom of the Netherlands, particularly the Caribbean countries of the Kingdom.

This level of governance is discussed in more detail in Chapter III.

(2) The Kingdom of the Netherlands, consisting of the four autonomous countries (the

Netherlands, Aruba, Curaçao and St Maarten). The Kingdom of the Netherlands is

a governance structure sui generis. It is in between an association of states and a

federal state and certainly does not imply a centralised, unitarian state. The

legislative powers on the central level of the Kingdom are strictly limited. The most

important (general) power of the Kingdom to supervise the observance of

fundamental human rights and principles of the rule of law and good governance

in its countries has a vague nature. The powers of the Kingdom are further

elaborated in Chapter IV.

(3) The autonomous Caribbean countries of the Kingdom of the Netherlands (Aruba,

Curaçao and St Maarten). These countries enjoy autonomy when it comes to law

making and thus have their own laws. Legislation of relevance to combating

offshore practices is considered in Chapter V. The Caribbean countries of the

Kingdom can be bound by treaties concluded by the Kingdom but only in case the

treaty was ratified for these countries. For example, they are bound by the European

Convention on Human Rights and Fundamental Freedoms (ECHR). The Kingdom

can intervene in the governance of its Caribbean countries only in exceptional cases,

particularly where good governance is at stake.

(4) The Caribbean territories of the Country of the Netherlands, also known as the

Caribbean Netherlands (Bonaire, Statia and Saba). Together with the European

Netherlands, these territories are part of the Country of the Netherlands. The latter

can be characterised as a (decentralised) unitarian state which has a central

government, as well as regional authorities (provinces) and local authorities

(municipalities) with their own powers based on the subsidiarity principle

(centralised powers only in so far as decentralised powers are inadequate). Thus

Bonaire, Stata and Saba are the addressees of legislation adopted at the level of the

Country of the Netherlands in its capital, The Hague, and are subject to oversight by

the Dutch authorities.198 However, as will be explained in Chapter VI, this does not

imply that the European Netherlands and the Caribbean Netherlands have entirely

the same legislation with respect to offshore practices.

198 For reasons of flexibility, the Caribbean territories of the Country of the Netherlands do not have

the status of a regular municipality but that of a public entity sui generis. In particular, this status

implies that these Caribbean territories are not part of any province, like all Dutch municipalities,

but only have a direct relationship with the central government of the Country of the Netherlands in

The Hague.


PE 593.803 II - 112

2.3 The Caribbean Countries and the Influence of Dutch and

European Law

Despite the OCT status of the Caribbean countries and their autonomous position within

the Kingdom of the Netherlands, the legal principles and legislation of the Caribbean

countries and those of the Country of the Netherlands are closely allied. The vast majority

of the Caribbean legislation is based on the Dutch legislation. The explanation for this is

twofold. A legal explanation has to do with the principle of concordance

(concordantiebeginsel) embodied in Article 39 of the Charter of the Kingdom of the

Netherlands. This principle aims at ensuring convergence of the laws of the four countries

of the Kingdom.

A pragmatic explanation of the phenomenon of ‘legal transplants’ is simple. The Caribbean

countries are traditionally familiar with the Dutch civil, administrative and criminal law

system and, given their small legislative capacities, are inclined to adopt Dutch legislation.

Since EU law profoundly affects Dutch law, it also indirectly influences the law of the

Caribbean countries. At the same time, the impact of Dutch and European law in the

Caribbean countries generally lags behind. At present, much Caribbean legislation reflects

Dutch and European law from earlier days. This is the case, for example, in the field of

environmental law. Conversely, the Caribbean legislation in the financial sector is quite

modern. This is a result of cooperation within the Kingdom of the Netherlands.

2.4 Political Sensitivity and the Use of Soft Tools

While the law of the Caribbean countries reflects Dutch law, the relationship between the

three Caribbean countries and the Country of the Netherlands is rather complicated.

Firstly, because of their common colonial history.199 In order to avoid criticism in the

Caribbean countries fed by post-colonial sentiment, the Dutch government is very

reluctant to intervene in their affairs. Secondly, a lack of balance in terms of the population

size between the Country of the Netherlands (17 000 000 inhabitants) and the other three

(Caribbean) countries of the Kingdom (Curaçao 153 500, Aruba 102 911 and St Maarten

33 600 inhabitants) adds further complexity to an already complicated relationship.200

As a consequence, the Country of the Netherlands tends to be (stricto sensu mistakenly)

identified with the Kingdom of the Netherlands and vice versa. For both reasons, the Dutch

attitude towards the Caribbean countries is riddled with political sensitivity.201 Therefore,

in order to exert influence on these countries, the Dutch government tends to resort to soft

199 According to R. Santos do Nascimento, Het Koninkrijk ontsluierd (diss. Groningen – Aruba), Maklu-

Uitgevers, Apeldoorn–Antwerpen, 2016, p. 305, the Charter of the Kingdom of the Netherlands is a

residue of colonialism: ‘This Kingdom is both de jure and de facto identical to the Netherlands. As a

result, the Caribbean peoples are not only de facto but also de jure subordinate to both the Netherlands

and the people of the Netherlands.’

200 See Table 1 in section 2.1 of Chapter II.

201 As one of the famous authors of Curaçao, Boelie van Leeuwen, once explained: ‘You Dutch play

chess, we play domino. You are calculating, we totally surrender to our passion. And that is why we

for centuries talk to each other without understanding one another.’ See M. Schenk, J. Schinkelshoek,

‘Antilliaanse politiek had tot tien moeten tellen’, Volkskrant 14 January 2008.

http://www.volkskrant.nl/binnenland/antilliaanse-politiek-had-tot-tien-moeten-tellen~a894172



PE 593.803 II - 113

tools, such as dialogue with local authorities or the provision of expert advice, rather than

hard tools, such as binding instructions.202 In many respects, this is also true for the

Caribbean territories of the Country of the Netherlands. In fact, political manoeuvring is

an essential element of the relations between the European Netherlands, the Caribbean

countries and the Caribbean Netherlands.

The European Netherlands is clearly much more important for the inhabitants of the

Caribbean countries and the Caribbean Netherlands than the other way around. In fact,

many people from the Caribbean live in the European Netherlands. At the same time, the

European Netherlands is generally not very popular in the Caribbean. People in the

Caribbean cherish the ability to do their own business without interference from the

outside. Nevertheless, there is awareness that some assistance from the European

Netherlands can be helpful. Such assistance may not only take the form of financial aid

but, as further explained in section 5 below, also that of cooperation in judicial matters.

2.5 Small Scale Societies

It is notable that Dutch judges often sit and take decisions in the Caribbean courts, which

is often criticised both in the autonomous Caribbean countries of the Kingdom of the

Netherlands and the Caribbean territories of the Country of the Netherlands. At the same

time, both politicians and ordinary people in these countries and territories know very well

how important independence and impartiality of the judiciary are for their economies. An

independent and impartial judiciary is crucial where the political and governmental

system is highly polarised and nepotism and favouritism are very common. In fact, the

latter phenomena are inherent in such small scale societies as those in the Caribbean.

A closely related aspect is the poor implementation and enforcement of law. Evidently, this

problem is also related to a shortage of human and financial resources. Another issue faced

by small scale societies is a lack of checks and balances. Apart from the judiciary, there are

only few countervailing powers, like regulatory and supervisory authorities. For example,

while the Caribbean countries of the Kingdom normally have a Central Bank, a Court of

Auditors and an Economic and Social Council, financial supervisory authorities and

inspectorates in many other domains are simply non-existent.

In addition, by frequently using private companies (legal persons) for public tasks, the

Caribbean countries try to create some distance from politics. However, in practice there

are close links between such companies and the local governments. At the same time, it

must be recognised that there are some important differences when it comes to acting in

accordance with the standards of integrity. With due deference and prudence, one can say

that the level of respect for such standards differs across the Caribbean countries and

territories of the Kingdom.

202 This is illustrated by the ISLA case (in English). Relevant case law includes, for example,

Gemeenschappelijk Hof van de Nederlandse Antillen en Aruba, 15 September 2009,

ECLI:NL:OGHNAA:2009:BJ7862, and Gemeenschappelijk Hof van de Nederlandse Antillen en Aruba, 12

January 2010, ECLI:NL:OGHNAA:2010:BK9395. See also the documents pertaining to the Expert

Meeting at the Dutch Parliament concerning ISLA held on 27 January 2016.

http://www.stichtingsmoc.nl/category/english/

https://www.tweedekamer.nl/vergaderingen/commissievergaderingen/details?id=2015A05204

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It is also important to bear in mind that cooperation with the Country of the Netherlands

is essential for small scale societies. As mentioned above, such cooperation exists in judicial

matters. Even more cooperation between the Country of the Netherlands and the

Caribbean countries is envisaged in the area of justice. An important example is the Law

Enforcement Council, i.e. a legal entity in which the Country of Curaçao, the Country of St

Maarten and the Country of the Netherlands (on behalf of Bonaire, Statia and Saba) take

part. The Council is based on the Kingdom Act on the Law Enforcement Council (7 July

2010).203 Its function is to monitor the quality of all parts of the justice system (with the

exception of the courts) and foster cooperation between Curaçao, St Maarten and the

Netherlands. The Council is charged, inter alia, with the general inspection of the

organisation of the judiciary and the quality and effectiveness of judicial cooperation

between the countries.204

It is notable that none of the reports of the Council published so far concerns money

laundering, tax evasion or tax transparency. This suggests that these topics have not

proved very problematic. The recent research has focused, for example, on the quality of

the information available for police and prosecution (Curaçao)205 and the state of law

enforcement (Curaçao, St Maarten).206

2.6 Concluding Remarks

This Chapter has shown that in the wake of the 2010 constitutional reform of the structure

of the Kingdom of the Netherlands, its OCTs (i.e. Aruba, Curaçao, St Maarten, Bonaire,

Statia, Saba) operate within a complex multi-level system of governance consisting of four

levels: (1) the EU level ; (2) the level of the Kingdom of the Netherlands ; (3) the level of the

autonomous Caribbean countries of the Kingdom of the Netherlands ; and (4) the level of

the Caribbean territories of the Country of the Netherlands. Each level is characterised by

its own constitutional set-up which determines the relationship between the EU, the

Kingdom of the Netherlands, the Country of the Netherlands and the OCTs, based on the

division of competences.

The four levels identified in this Chapter will be subject to further examination in the

following chapters. This Chapter has also shed some light on the historical, geographical,

economic and political context in which the multi-level system of governance operates. In

particular, it has highlighted an uneasy relationship between the Country of the

Netherlands on the one hand, and the Caribbean countries of the Kingdom of the

Netherlands (Aruba, Curaçao, St Maarten) and the Caribbean Netherlands (Bonaire, Statia

and Saba), on the other, given the colonial past and the small scale of societies concerned.

203 Rijkswet van 7 juli 2010 tot regeling van de instelling, taken en bevoegdheden van de Raad voor

de rechtshandhaving van Curaçao, van Sint Maarten en van Bonaire, Sint Eustatius en Saba (Rijkswet

Raad voor de rechtshandhaving; Kingdom legislation on the establishment, task and powers of the

Council for Law Enforcement), Stb 2010, 388.

204 A short historical background of the Law Enforcement Council, last visited: 23 March 2017.

205 See Raad voor de rechtshandhaving, 2015.

206 See Raad voor de rechtshandhaving: Curaçao and St Maarten, 2015.

http://www.raadrechtshandhaving.com/en_GB/de-raad/gechiedenis/

http://www.raadrechtshandhaving.com/wp-content/uploads/2016/03/Inspectierapport-vervolgingsbeleid-van-het-OM.pdf

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Chapter III: The European Union and the OCTs of the

Kingdom of the Netherlands

Building on the general framework governing the relationship between the EU, the

Kingdom of the Netherlands, the Country of the Netherlands and the OCTs of the

Kingdom presented in Chapter II, we now turn to the EU level of the multilevel governance

system in which the OCTs operate. In particular, this Chapter will discuss the relationship

between the EU and the OCTs of the Kingdom of the Netherlands and the possible role of

the EU in combating money laundering and tax evasion and enhancing tax transparency

in such territories.

3.1 The Application of the EU Treaties in the OCTs of the Kingdom

The EU Treaties, the TEU and the TFEU, are according to Article 52 TEU applicable in the

whole territory of the Member States. However, for further details on the ratione loci of the

EU Treaties, Article 52(2) TEU, refers to Article 355 of the TFEU. According to Article 355

under (2) TFEU, ‘the special arrangements for association set out in Part Four shall apply

to the overseas countries and territories listed in Annex II’. The association of the OCTs in

Part IV of the TFEU comprises seven provisions. The purpose of the OCT association is by

virtue of Article 198 TFEU twofold. Firstly, it seeks to promote the OCTs’ economic and

social development, and secondly, it aims to establish close economic ties between the

OCTs and the EU. The OCT association’s objectives are mentioned in Article 199 TFEU.

Those are, inter alia, that the EU Member States shall apply the same treatment to their

trade with the OCTs as they apply with other Member States pursuant to the EU Treaties207,

and that the Member States shall contribute to the investments which are required for the

OCTs’ development.208

Part Four of the TFEU does not contain any legal obligations for the Member States or the

OCTs to ensure the application of relevant EU law pertaining to money laundering, tax

evasion and tax transparency. However, in the EU Action Plan to Combat Organised

Crime209 adopted by the Council on 28 April 1997, the EU obliges Member States ’to take

action and provide adequate defences against the use by organised crime of financial

centres and off-shore facilities, in particular where these are located in places subject to

their jurisdiction’.210 In this Action Plan, it is considered that pertaining to these Member

States’ locations ‘elsewhere’, it is the duty of the Council to develop ’a common policy,

consistent with the policy conducted by the Member States internally, with a view to prevent the

use thereof by criminal organisations operating within the Union […]’.211

207 Article 199(1) TFEU.

208 Article 199(3) TFEU.

209 Action Plan to Combat Organised Crime, 97/C 251/01, OJ EC, Vol. 40.



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3.2 The Overseas Association Decision and Money Laundering, Tax

Evasion and Tax Transparency in the OCTs of the Kingdom

At present, the common policy envisaged in the 1997 Action Plan is generally lacking in

the EU. However, it is notable that the Overseas Association Decision (OAD), currently the

8th version, as adopted by the Council in Decision 2013/755 on 25 November 2013, opens

up major possibilities for developing such a policy with respect to money laundering, tax

evasion and tax transparency in the OCTs. Although the application of the provisions of

EU law concerning these aspects is not included in the association regime of Part Four of

the TFEU, the rationale of the above-mentioned Action Plan concerning a common policy

within the EU, including the OCTs of the Kingdom of the Netherlands, is – more

specifically – reiterated in the Preamble of the OAD:

‘Cooperation in the area of financial services between the Union and OCTs should contribute to

building a safer, sounder, more transparent financial system that is essential to enhance global

financial stability and to underpin sustainable growth. Efforts in that area should focus on

convergence with internationally agreed standards and approximation of OCTs legislation with

Union acquis on financial services. Adequate attention should be paid to strengthening

administrative capacity of OCTs authorities, including in the area of supervision’.212

This objective is elaborated in several provisions of the OAD. The first relevant provision

of the OAD concerning this issue is Article 40(2). According to this provision, which is

embodied in Chapter 6 of Part Two entitled ‘Areas of Cooperation for Sustainable

Development in the Framework of the Association’, the OCTs ’shall cooperate with the

Union as regards combatting money laundering and the financing of terrorism in

accordance with the Articles 70 and 71’. Furthermore, Article 42(g) OAD explicitly

mentions that one of the general objectives of the trade and trade-related cooperation

between the EU and the OCTs is to ’promote the stability, integrity and transparency of

the global financial system, and good governance in the tax area’.213 Building upon this

provision of the OAD, Articles 70 and 71 OAD in turn address the issue of cooperation in

the area of financial services and taxation matters. Article 70 OAD reads:

‘With a view to promote the stability, integrity and transparency of the global financial system, the

association may include cooperation on international financial services. Such cooperation may

concern: […]

(b) the prevention and combat of money laundering and financing of terrorism’.

By virtue of Article 71 OAD, the EU and the OCTs should promote regulatory alignment

concerning recognised international standards on regulation and supervision in the area

of financial services. This list includes among others the following standards: the Basel

Committee’s Core Principle for Effective Banking Supervision, the OECD’s Agreement on

212 Preamble Council Decision 2013/755/EU, L344/1, under 31.

213 See also Article 66(2) which reads as follows: ‘Nothing in this Decision may be construed so as to

prevent the adoption or enforcement of any measure aimed at preventing tax fraud or avoidance or

evasion of taxes pursuant to the tax provisions of agreements to avoid double taxation or other tax

arrangements, or domestic tax legislation in force.’

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exchange of information on tax matters, the G20 Statement on Transparency and exchange of

information for tax purposes and the Financial Action Task Force’s International Standards on

Combatting Money Laundering and the Financing of Terrorism and Proliferation – the FATF

Recommendations. In addition, this provision also includes the following final sentence:

‘When it is appropriate to do so, or at the request of the OCTs concerned, the Union and the OCTs

may make efforts to promote greater alignment of OCTs legislation with Union legislation on

financial services’.

Since the OAD is a decision of the Council, it is up to the Council to clarify when it seems

appropriate to promote greater convergence of the OCTs’ legislation to EU legislation

pertaining to money laundering, tax evasion and tax transparency. Concerning the

cooperation between the EU and the OCTs in the tax area, Article 73 OAD reads as follows:

‘The Union and the OCTs shall promote cooperation in the tax area in order to facilitate the

collection of legitimate tax revenues and to develop measures for the effective implementation of the

principles of good governance in the tax area, including transparency, exchange of information and

fair tax competition’.

According to Geursen,214 the OAD only contains a ‘soft-law obligation and not a hard legal

obligation’. In our opinion, this is true so far as the above-mentioned provisions use such

terms as ‘shall promote’ or ‘may concern’. However, there are also hard legal obligations

of the OCTs when it comes to the protection of the EU’s financial interests. Thus Article

90(1) OAD empowers the European Commission to take appropriate measures ‘ensuring

that, when actions financed under this Decision are implemented, the financial interests of

the Union protected by the application of preventive measures against fraud, corruption

and any other legal activities, by effective checks and, if irregularities are detected, by the

recovery of the amounts wrongly paid and, where appropriate, by effective, proportionate

and deterrent penalties’.

In this context, the European Anti-fraud Office (OLAF) may carry out on-the-spot checks

and inspections on economic operators concerned directly or indirectly with EU funding

to the OCTs in order to determine whether there has been fraud, corruption or any other

illegal activity in connection with such funding.215 The primary responsibility for the

financial supervision of the EU funds lies with the OCTs.216 However, the OCTs will carry

out such supervision, where appropriate, with the EU Member State to which the OCTs

are constitutionally linked.217 The European Commission is responsible for ensuring the

correct and effective use of EU funding in the OCTs, and in the case that irregularities take

place, it is obliged to send recommendations or requests for remedying these irregularities

214 W. Geursen, Influence of EU Law on Taxation in the EU Member States’ Overseas Territories and Crown

Dependencies, In-Depth Analysis for the TAXE 2 Committee of the European Parliament, 2016.

215 Article 90 (2) OAD.


217 Article 90 (3) OAD. The cooperation between the Member State and its OCTs in the supervision

of Union funds shall be carried out in accordance with national legislation of the Member State in

question.







PE 593.803 II - 118

to the OCTs.218 Finally, with regard to financial corrections, the OAD also makes it clear

that although the OCTs are in the first instance responsible for detecting and correcting

financial irregularities, ‘in the event of shortcomings by the OCTs concerned, the Commission

shall take action, if the OCT fails to remedy the situation and attempts at conciliation are

unsuccessful, to reduce or withdraw the balance of the overall allocation corresponding to the

financing decision of the Programming Document’.219 This provision of the OAD can be

regarded as a hard obligation, since the European Commission has the power to reduce or

withdraw financial support to the OCTs if the latter fail to ensure the correct and effective

use of EU funding. The Commission´s competences concerning the protection of the EU´s

financial interests with regard to the OCTs are summarised in a schematic overview in

Figure 3.

Figure 3: The Powers of the European Commission with Respect to Protecting the Financial Interests of the EU in the OCTs under the OAD

Source: Authors’ elaboration of Article 90 OAD.



In order to protect the financial interests of

the EU, the European Commission can act with regard to the

OCTs:

By carrying out effective checks

(possibly by OLAF)

By sending recommendations for

corrective measures (if irregularities are

detected)

By ordering the recovery of amounts of

wrongly paid (if irregularities are

detected)

By imposing effective, proportionate and deterrent penalties (where appropriate)

The OCT concerned is responsible for detecting any

correcting financial irregularities

In the event of shortcomings by the OCT concerned, the

European Commission shall take action to reduce or withdraw the balance of the

EU´s financial allocation





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Since under Article 90(6)(a) OAD the OCTs have a primary responsibility for remedying

any detected financial irregularities, the European Commission should send its

recommendations for possible corrective measures to the OCT concerned, i.e. Aruba,

Curacao, St. Maarten, Bonaire, Statia and Saba. However, due to the constitutional

framework of the Kingdom of the Netherlands and the Country of the Netherlands, it is

possible for the European Commission to contact the Country of the Netherlands if

irregularities are detected in the Caribbean Netherlands (Bonaire, Statia and Saba), since

the Caribbean Netherlands is part of the Country of the Netherlands.

3.3 The Extended Application of EU Law in the OCTs of the Kingdom

under the CJEU Case Law

Although under the EU Treaties the OCTs of the Kingdom of the Netherlands are only

subject to the association regime of Part IV of the TFEU, in the case law of the CJEU the

territorial and personal scope of the TFEU has been extended to these territories. It has also

been noted in the literature that ‘Part IV TFEU is not all the law applicable to the OCTs’.220

In this section, therefore, some relevant case law of the CJEU concerning the extension of

the TFEU’s application to the OCTs will be briefly discussed in order to show that the

application of EU law in the OCTs is not limited to Part IV of the TFEU.

One of the first cases concerning the intricate matter of EU law and the OCTs is Kaefer and

Procacci.221 In this case pertaining to two decisions of the High Commissioner of the French

Republic of Polynesia (a French OCT), the CJEU ruled that it has jurisdiction to provide

preliminary rulings on questions raised by a court or tribunal located in an OCT, in casu

the Tribunal administratif, Papeete. Consequently, in addition to Part IV of the TFU, Article

267 TFEU concerning preliminary rulings is applicable in the OCTs.

Furthermore, the Antillean Rice Mills judgement of the CJEU has made it clear that the

Principles of Part I of the TFEU are also fully applicable in the OCTs.222 Antillean Rice Mills

NV was a company established in Bonaire. In this case the Court ruled that when adopting

an OAD, the Council ‘must take account not only of the principles in Part Four of the Treaty

but also of the other principles of Community law, including those relating to the common

agricultural policy’.223 The Court also stated that this conclusion is consistent with Article

131 of the Treaty (now Article 197 TFEU), according to which the OCT-association’s

objective is to promote the economic and social development of the OCTs.224

220 D. Kochenov, The EU and the Overseas: Outermost Regions, Overseas Countries and Territories

Associated with the Union, and Territories Sui Generis, in D. Kochenov (ed.), The EU and the Overseas:

Outermost Regions, Overseas Countries and Territories Associated with the Union, and Territories Sui

Generis, Kluwer Law International, The Hague, 2011, pp. 3-67.

221 Case C-100& 101/89 Kaefer and Procacci [1990] ECR I-4667.

222 Case C-390-95 P Antillean Rice Mills [1999] ECR I-798.

223 Case C-390-95 P Antillean Rice Mills [1999] ECR I-798, para. 37.

224 Case C-390-95 P Antillean Rice Mills [1999] ECR I-798, para. 38.

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Another major judgement of the ECJ with respect to the scope of the TFEU is Eman and

Sevinger.225 Both Eman and Sevinger are citizens of the Kingdom of the Netherlands.226 In

this judgement the Court ruled that:

’[P]ersons who possess the nationality of a Member State and who reside or live in a territory which

is one of the OCTs referred to in Article 299(3) EC may rely on the rights conferred on citizens of

the Union in Part Two of the Treaty’.227

According to this judgement, the OCT-citizens who have the nationality of one of the

Member States are also EU citizens and can thus rely on the rights in Part II of the TFEU.

Based on the current state of EU law, in particular the above-mentioned case law of the

CJEU, Figure 4 provides a schematic overview of the reach of EU law in the OCTs.

Figure 4: The Application of EU Law in the OCTs According to the Case Law of the CJEU


As the diagram in Figure 4 shows, the application of EU law in the OCTs extends beyond

Part IV of the TFEU. In our opinion, therefore, the claim that only Part IV of the TFEU is

applicable in the OCTs is no longer justified given the above-mentioned developments in

EU law.228 Remarkably, most case law of the CJEU concerning the application of the TFEU

225 Case C-300/04 Eman and Sevinger [2006] ECR I-8055.

226 There is one nationality in the Kingdom of the Netherlands: the Dutch one, see Artcile 3(1)(c) of

the Charter of the Kingdom of the Netherlands. For further details, see: G. Karapetian, ’De genesis

van de Europese burger overzee. Over het personenverkeer van Nederlanders binnen het

Koninkrijk’, Tijdschrift voor Constitutioneel Recht, 2016, pp. 99 – 114.

227 Case C-300/04 Eman and Sevinger [2006] ECR I-8055, para. 29.

228 See also: J. Ziller, The European Union and the Territorial Scope of European Territories, 38 Vict,

University Wellington Law Review, 2007; D. Kochenov, The EU and the Overseas: Outermost Regions,

EU Law in the OCTs

Part IV TFEU

OAD

Article 267 TFEU

(Kaefer & Procacci)

Part I TFEU

(Antillean Rice Mills)

Part II TFEU

(Eman & Sevinger)

http://curia.europa.eu/juris/showPdf.jsf?text=&docid=63875&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=182254

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in the OCTs has its origin in a rather peculiar constitutional framework of the Kingdom of

the Netherlands discussed in Chapters II and IV in more detail.


This Chapter has analysed the relationship between the EU and the OCTs of the Kingdom

of the Netherlands with the focus on the reach of EU law in such territories. It has

demonstrated that under current EU law the application of EU law in the OCTs is no longer

limited to Part IV of the TFEU. The case law of the CJEU has progressively expanded the

reach of EU law in the OCTs to other parts of the Treaty. Moreover, under the recent OAD,

EU not only has soft tools but also hard instruments, such as the power of the European

Commission to withdraw or reduce financial aid to the OCTs, that could allow the Union

to exert impact on the OCTs when it comes to combating money laundering and tax

evasion and enhancing tax transparency. These developments in EU overseas law

demonstrate a move away from the traditional paradigm of the relationship between the

EU and OCTs based on one-sided classic development and aid cooperation towards a more

reciprocal partnership between the two parties.229 As a consequence, the EU can play an

increasingly important role in fighting offshore practices in the OCTs of the Kingdom of

the Netherlands in cooperation with these OCTs.

Overseas Countries and Territories Associated with the Union, and Territories Sui Generis, in D.

Kochenov (ed.), The EU and the Overseas: Outermost Regions, Overseas Countries and Territories

Associated with the Union, and Territories Sui Generis, Kluwer Law International, The Hague, 2011,

pp. 3-67.

229 See also European Commission, Green Paper on Future Relations between the EU and the Overseas

Counties and Territories, COM (2008) 383, Brussels, 25-06-2008; European Commission, Communication

from the Commission to the European Parliament, the Council, the European Economic and Social Committee

and the Committee of the Regions, Elements for a New Partnership between the EU and the Overseas Countries

and Territories (OCTs), COM (2009) 623, Brussels, 6-11-2009.

https://ec.europa.eu/europeaid/sites/devco/files/communication-green-paper-eu-and-overseas-countries-and-territories-relations-20080625_en.pdf


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Chapter IV: The Kingdom of the Netherlands and the OCTs

Having addressed the possible role of the EU in combating money laundering and tax

evasion and enhancing tax transparency in the OCTs of the Kingdom of the Netherlands,

in this Chapter we will turn to the Kingdom of the Netherlands itself and analyse the

Kingdom’s powers in this area in relation to its OCTs, with a particular focus on the three

autonomous Caribbean countries, i.e. Aruba, Curaçao and St Maarten.

4.1 General Characteristics of the Charter for the Kingdom

After long discussions in the late 1940s, the Charter for the Kingdom of the Netherlands

(Statuut voor het Koninkrijk der Nederlanden) came into force on 29 December 1954. The

Charter for the Kingdom was the cornerstone of the new legal order of the Kingdom of the

Netherlands aimed at restructuring the Kingdom, emancipating the colonial territories in

the Caribbean and ensuring their influence on the Kingdom level. It was never intended to

be a fully-fledged new constitution of the reconstituted Kingdom. It is rather a kind of

‘adjacent constitution’ to augment the existing Constitution for the Kingdom (Grondwet

voor het Koninkrijk der Nederlanden), which has always been the Constitution for the

European Netherlands and the Kingdom’s overseas territories in the Caribbean, in so far

as they were subject to the regulatory and administrative powers exercised by Dutch state

authorities.230

The Charter does not fundamentally change that constitutional make-up, but restructures

it in a few important ways. First of all, it is no longer the Constitution itself but the Charter

that regulates which parts of the Constitution are in force for the overseas territories of the

Kingdom. Secondly, the Charter provides for the ways through which the Caribbean

countries of the Kingdom, i.e. Aruba, Curaçao and St Maarten, can influence decision-

making at the Kingdom level. Thirdly, it stipulates the powers of the Kingdom and, by

default, the autonomous powers of each of the Kingdom countries, thereby guaranteeing

the autonomy of the Caribbean countries within the framework of the Kingdom. Finally,

the Charter can only be amended through the collaboration of all the four countries of the

Kingdom (i.e. the Netherlands, Aruba, Curaçao and St Maarten), which constitutes an

important safeguard for the Caribbean countries of the Kingdom.231 However, because the

Charter is the supreme law of the Kingdom, it also affects and limits the authorities of the

Country of the Netherlands itself.

4.2 The Kingdom’s Constitutional Make-Up

In general, the structure of the Charter can be characterised as follows. The Charter

recognises the principal authorities of the Dutch state laid down in the Constitution – the

King, the Government, the States-General (Staten-Generaal, the parliament), the Council of

State (Raad van State, the main advisory body in legislative matters), and ‘reinstates’ them

as the authorities of the Kingdom. In their capacity as the Kingdom’s authorities, they are

not only governed by the relevant provisions of the Constitution but also those of the

230 The best account of the genesis of the Charter is G. Oostindie and I. Klinkers, Knellende

Koninkrijksbanden, Part 1, Amsterdam University Press, Amsterdam, 2001.

231 C. Borman, Het Statuut voor het Koninkrijk, Kluwer, Deventer, 2012, pp. 21-45.



PE 593.803 II - 123

Charter. The provisions of the Charter guarantee that Aruba, Curaçao and St Maarten can,

through elected and appointed representatives, exercise their influence on the decision-

making process in the Kingdom. The impact of the Caribbean countries on this process is

(almost) never decisive, but it is greater than their population size compared to that of the

Country of the Netherlands would merit.

The principal body of the Kingdom of the Netherlands is the Kingdom Government, which

comprises the King, all ministers who form the government of the Country of the

Netherlands, and one Minister-Plenipotentiary for each of the three Caribbean countries,

who is nominated by and responsible to his or her own government.232 Decisions in the

Council of Ministers (i.e. the government without the King) are in principle taken by

unanimity, but when there is a conflict among the Dutch ministers and one or more of the

Ministers-Plenipotentiary, a special procedure is laid down in Article 12 of the Charter.

This procedure guarantees that the Minister-Plenipotentiary has a stronger voice in the

Council of Ministers than any of his Dutch colleagues unilaterally, but not strong enough

to overcome persistent objections from the ‘Dutch’ part of the Kingdom’s Government.

The Council of State, which is the primary advisory body with respect to all legislation in

the Kingdom, is also an authority of both the Country of the Netherlands and the Kingdom

of the Netherlands. The Council of State of the Kingdom comprises all the members of the

Dutch Council of State, but the Charter stipulates that the King can nominate three extra

members, one for each of the three Caribbean countries, if their governments so desire.

They take part in the activities of the Council when it comes to Kingdom regulations.233

Although the legislator of the Kingdom comprises the Kingdom’s Government together

with the States-General, the Charter does not provide for the enlargement of the States-

General when dealing with Kingdom legislation. In order to guarantee that the Caribbean

countries can also influence the legislative process, the Ministers-Plenipotentiary are given

some special powers to act in Parliament. In particular, they can speak in both chambers of

the States-General to present the opinion of their own governments (and are therefore not

bound by the normal unanimity rules of government vis-à-vis parliament); they can

propose amendments to acts and a qualified majority in the Second Chamber of parliament

is necessary to overcome objections of the Ministers-Plenipotentiary raised against a law

proposal.234 The three overseas parliaments themselves can also send representatives to the

States-General to take part in the legislative procedure and they can basically exercise the

same rights as the Ministers-Plenipotentiary.235 However, the Charter does not provide for

actual voting rights in the States-General for the representative of the overseas parliaments

and the Ministers Plenipotentiary. This situation has often been described as the

democratic deficit of the Kingdom.

232 Article 7, Charter of the Kingdom of the Netherlands.

233 Article 13, Charter of the Kingdom of the Netherlands.

234 Articles 17 and 18, Charter of the Kingdom of the Netherlands.

235 Articles 17 and 18, Charter of the Kingdom of the Netherlands.

http://www.arubaforeignaffairs.com/afa/readBlob.do?id=704





PE 593.803 II - 124

4.3 The Kingdom’s Powers

The powers of the Kingdom are mostly well-defined and narrow. One of the strongest

indications for the quasi-federal structure of the Kingdom is the fact that the Charter

defines and limits the powers of the Kingdom, which are mostly laid down in Article 3 of

the Charter. Everything else is within the autonomous sphere of the four countries of the

Kingdom. The most important powers of the Kingdom relate to defence and foreign

relations, nationality law, shipping regulations, immigration and free travel of Dutch

nationals and extradition.

However, Article 3 is not the only source of the Kingdom powers. The Kingdom, and

especially the Kingdom Government, also has some important powers in the field of

control and oversight. The main source of these powers is Article 43 of the Charter for the

Kingdom. This article lays down the obligation of each of the four countries of the

Kingdom to promote the realisation of fundamental human rights and freedoms, the rule

of law and good governance. According to this provision, the Kingdom acts as a guarantor

of the observance of this obligation by the countries of the Kingdom. It is generally

recognised that Article 43 does not in itself create powers for the Kingdom or the Kingdom

Government.

There are certain Charter provisions that do create specific powers to uphold Article 43.

The first is the one laid down in Article 44 of the Charter. According to this provision, any

amendment to the Constitutions of Aruba, Curaçao or St Maarten dealing with

fundamental human rights, the powers of government, the local parliament or the judiciary

needs the approval of the Kingdom Government before it can enter into force.

Article 45 of the Charter mirrors this for the Country of the Netherlands: the amendments

to the Dutch Constitution concerning the same matters need to be discussed within the

Council of Ministers of the Kingdom before they can be brought before the States-General.

This gives the Ministers-Plenipotentiary the chance to discuss the amendments with

respect to such fundamental issues with their Dutch colleagues and express the views of

their own governments.

Articles 50 and 51 of the Charter empower the Kingdom Government to nullify any legal

provision laid down in the legislation of Aruba, Curaçao or St Maarten if it violates

Kingdom law, international obligations of the Kingdom or other fundamental interests of

the Kingdom, and to interpose itself autonomously when a public body in one of the three

Caribbean countries does not fulfil its obligations under the Charter, a treaty or a Kingdom

regulation. However, both articles have so far never been applied.

4.4 Financial Oversight by the Kingdom in the Autonomous

Caribbean Countries

The Charter for the Kingdom of the Netherlands does not confer specific powers on the

Kingdom with regard to oversight in the areas of financial and tax law, in particular when

it comes to money laundering, tax evasion and tax transparency.



PE 593.803 II - 125

Most relevant in this context is the Kingdom Financial Supervision Act for Curaçao and St

Maarten (Rijkswet financieel toezicht Curaçao en Sint Maarten) that entered into force after the

breaking up of the Netherlands Antilles in 2010.236 This act is a Kingdom act but not a

regular one. It was made by the Kingdom legislator based on Article 38 of the Charter,

which stipulates that the countries of the Kingdom can enable the Kingdom itself to

regulate matters that lie within these countries’ competence.

The financial supervision act in question provides that the Kingdom shall have indirect

oversight over the budget of both St Maarten and Curaçao through an independent body,

i.e. the Financial Supervisory Board (College Financieel Toezicht, CFT). Four members of this

body are nominated by the councils of ministers of the Kingdom of the Netherlands, the

Country of the Netherlands, the Country of Curaçao and the Country of St Maarten,

respectively. The Financial Supervisory Board has not only oversight powers over the

budget and the development of the collective sector of Curaçao and St Maarten, but also

the power to determine which officials have the authority to enter into financial obligations

under private law.237 The Board is only empowered to make recommendations to the

governments of Curaçao and St Maarten and to the Kingdom Government. Only the

Kingdom Government can take binding decisions.

There is also another route through which the Kingdom of the Netherlands may exert

influence on the way in which its overseas countries are dealing with the issue of political

and financial integrity. On 30 September 2013, the Kingdom Government gave an official

instruction to the Governor of St Maarten to order an independent evaluation of the state

of public and financial affairs in St Maarten.238 This evaluation was to be conducted by

independent researchers and the results of it were to be communicated to the Kingdom

Government within six months.239 The instruction was based on Article 15 of the

Regulations concerning the Governor of St Maarten (Reglement voor de Gouverneur van Sint

Maarten), the Kingdom Act concerning the position and powers of the Governor as the

Kingdom’s authority.240 This article stipulates that the Governor represents the Kingdom

Government and safeguards the common good of the Kingdom in accordance with the

provisions of the Regulations and under the instructions of the Kingdom Government.

However, there has been some recent controversy over the meaning of this provision. Does

it mean that the Kingdom Government can instruct the Governor to take any action it

considers appropriate or should such instructions be linked to the powers of the Governor

laid down in the Regulations in question? In the case at hand, as well as in other cases in

which instructions were given to the Governors of St Maarten and Aruba, the Kingdom

236 Rijkswet financieel toezicht Curaçao en Sint Maarten van 10 juli 2010, Stb. 2010, 334.

237 Ibid., Article 20.

238 The results of this evaluation are discussed in Chapter V below.

239 Besluit van 30 september 2013, houdende een aanwijzing aan de Gouverneur van Sint Maarten tot

het gelasten van onderzoek naar het functioneren van het openbaar bestuur op Sint Maarten (Royal

Decree of 30 September 2013 on the instruction to the Governor of Sint Maarten to order an

independent inquiry into the functioning of public administration in Sint Maarten), Landscourant

van Sint Maarten 2013, no. 21.

240 Rijkswet van 7 juli 2010, Stb. 2010, no. 340.


http://www.sintmaartengov.org/government/AZ/laws/National%20Gazettes/Landscourant%2011%20oktober%202013.pdf

http://www.sintmaartengov.org/government/AZ/laws/National%20Gazettes/Landscourant%2011%20oktober%202013.pdf

https://zoek.officielebekendmakingen.nl/stb-2010-340.html


PE 593.803 II - 126

Government has taken the position that such actions are covered by the general provision

of Article 43. However, in its official advice in the matter provided at the request of the

Dutch Parliament, the Council of State has denounced this standpoint and taken the view

that has historically always prevailed, i.e. that the only powers that can be used to uphold

Article 43 are those explicitly given in the Charter itself or in other Kingdom Acts.241

Although the Council of State of the Kingdom acts as an advisory body, its opinion carries

a lot of weight within both the Kingdom Government and the States-General.

According to the Council of State, the Kingdom Government can only give a legally

binding instruction within the limits of the powers of the Governor enumerated in the

Regulations. Among these powers are the following:

- The publication of all Kingdom Acts and Kingdom Orders by the Council of State

in St Maarten (Article 16);

- The oversight over observance of the Kingdom legal acts in St Maarten (Article 20);

- The right to refuse to sign a national ordinance of St Maarten if he deems this to be

in contravention of higher law (Article 21);

- The duty to send every national ordinance of St Maarten to the Kingdom

Government directly after its entry into force (Article 22).

In light of the above-mentioned opinion of the Council of State of the Kingdom and the

fact that its opinion reinforces and underlines a long-standing constitutional practice, it

seems clear that the instruction given by the Kingdom Government to the Governor of St

Maarten on 30 September 2013 is unconstitutional since it does not correspond to any of

the enumerated powers of the Governor.


The Kingdom of the Netherlands has a rather peculiar constitutional framework, which is

partly laid down in the Charter of the Kingdom of 1954 and partly in the Dutch

Constitution dating back to 1814. Within this constitutional framework, the existing

constitutional authorities of the Country of the Netherlands also act as the authorities of

the Kingdom of the Netherlands. Decision-making within the latter can be influenced by

the three autonomous Caribbean countries of the Kingdom only to a limited extent.

However, this is compensated by the fact that the Kingdom itself has very limited powers.

The only power of the Kingdom that could somehow be described as lying in the fields of

financial oversight, public-private cooperation and the private sector in the OCTs concerns

the power to safeguard good governance in these countries. But this general power does

not in itself create specific powers in the above-mentioned fields and has historically been

interpreted narrowly. This situation makes it hard to see how the Kingdom Government

could act within its powers to regulate or supervise the financial sector in its overseas

countries of Aruba, Curaçao and St Maarten.

241 Voorlichting over het geven van aanwijzingen aan de Gouverneurs van de landen in het

Caribische deel van het Koninkrijk (Official opinion on the power of the Kingdom Government to

give binding instructions to the Governors of the countries in the Caribbean part of the Kingdom),

Kamerstukken II 2014-2015, 34000 IV, nr. 52.



PE 593.803 II - 127

Chapter V: Financial oversight in the Caribbean countries

of the Kingdom of the Netherlands

As has been demonstrated in Chapter IV, the Charter for the Kingdom of the Netherlands

does not give powers to the Kingdom in matters relating to money laundering and tax

evasion. These subjects lie within the autonomous sphere of Aruba, Curaçao and St

Maarten. The Country of the Netherlands may exert impact on these three Caribbean

countries only within the framework of voluntary cooperation. In this light, this Chapter

will first provide an overview of the most important legislation relating to money

laundering, tax evasion as well as tax transparency, with the focus on Curaçao.

Subsequently, the competences of the Dutch Central Bank – De Nederlandsche Bank – and

the overseas central banks of the three Caribbean countries will be scrutinised. Finally,

cooperation between the Country of the Netherlands and the three Caribbean countries

within the Kingdom of the Netherlands will be discussed using the example of the case of

St Maarten Integrity Chamber.

5.1 Overseas Laws and Central Banks

Financial supervision in Aruba is governed by the National Ordinance on Aruban

Temporary Financial Supervision (Landsverordening Aruba Tijdelijk Financieel Toezicht). In

Curaçao and St Maarten, financial supervision is addressed by the Kingdom Act on

Financial Supervision and St Maarten (Rijkswet financieel toezicht Curaçao en Sint Maarten)

that provides for voluntary cooperation between the Country of the Netherlands, the

Country of Curaçao and the Country of St Maarten. These legislative acts also provided for

the establishment of the Boards of financial supervision (Colleges financieel toezicht) – the

Financial Supervisory Board of Aruba and the Financial Supervisory Board of Curaçao and

St Maarten. The aim of these Boards is to achieve ‘the common goal of all governments

within the Kingdom of the Netherlands: realising sustainable financial management’.242

The specific objectives of the two Boards vary from reporting and advising the Minister,

the Council of Ministers, the Government of the Kingdom and the Countries’ Parliaments

(Staten) to supervising the progress made in the implementation of reforms aimed at

improving financial governance and management.243

Apart from the above-mentioned financial supervision acts for the three Caribbean

countries of the Kingdom of the Netherlands, there are two Kingdom Acts concerning tax

matters for the Country of the Netherlands and the Country of Curaçao, on the one hand,

and the Country of the Netherlands and the Country of St Maarten, on the other. These are

242 As mentioned on the Boads’ website. See Boards of Financial Supervision (Colleges financieel

toezicht).

243 The specific objectives of the two Boards are mentioned in Article 4 of the Kingdom Act on

Financial Supervision Curaçao and St Maarten and in Article 2 of the Aruban National Ordinance

respectively. The reason that the legal foundation for financial oversight differs between Aruba and

the two other countries lies in the fact that the provisions concerning oversight in Curaçao and St

Maarten were part of the regulations leading to the dissolution of the Netherlands Antilles, while

related regulations for Aruba came into force only in 2014. However, the content of both regulations

is almost identical.

http://www.cft.cw/en/

http://www.cft.cw/en/


PE 593.803 II - 128

the Tax Regulation for the Netherlands and Curaçao (Belastingregeling Nederland Curaçao)244

and Tax Regulation for the Netherlands and St Maarten (Belastingregeling Nederland Sint

Maarten).245 These regulations aim at preventing double taxation. Other relevant

regulations include the Regulations concerning the Declaration of Cross-Border Money

Transports,246 the National Ordinance on International Tax Assistance,247 the National

Ordinance on the Notification of Unusual Transactions,248 the National Ordinance on the

Identification when Providing Services,249 the Regulation concerning the Indicators of

Unusual Transactions250, the National Ordinance on the Supervision of Money Transaction

Offices251, and the National Ordinance on the Notification of Cross-Border Transactions.252

Supervision over compliance with the legislation aimed at combating money laundering

and tax evasion and ensuring tax transparency normally lies in the hands of central banks.

Within the Kingdom of the Netherlands, there are three such banks: the Dutch Central

Bank (De Nederlandsche Bank), the Central Bank of Aruba (De Centrale Bank van Aruba) and

the Central Bank of Curaçao and St Maarten (Centrale Bank van Curaçao en Sint Maarten).

Due to increasing concerns about the well-functioning and integrity of the Central Bank of

Curaçao and St Maarten, the Dutch Central Bank has expanded its prudential supervision

activities in these overseas countries.253 Furthermore, the Dutch Central Bank itself is

responsible for financial supervision in the Caribbean territories of the Country of the

Netherlands (Bonaire, Statia and Saba). A schematic overview of the authorities in charge

of financial supervision in the OCTs of the Kingdom of the Netherlands is presented in

Figure 5.

244 Belastingregeling Nederland Curaçao of 30 September 2015.

245 Belastingregeling Nederland Sint Maarten of 23 December 2015.

246 Regeling aangifteformulier grensoverschrijdende geldtransporten (Sint Maarten) of 22 May 2015.

247 Landsverordening internationale bijstandsverlening bij de heffing van belastingen (Curaçao) of 2

August 2015.

248 Landsverordening melding ongebruikelijke transacties (St Maarten) of 23 July 2014.

249 Landsverordening identificatie bij dienstverlening (Curaçao) of 10 February 1996.

250 Regeling indicatoren ongebruikelijke transacties (Curaçao) of 21 May 2010.

251 Landsverordening toezicht geldtransactiekantoren (Curaçao) of 25 September 2014.

252 Landsverordening aanmeldplicht grensoverschrijdende transacties (St Maarten) of 25 March 2002.

253 De Nederlandsche Bank, Staat van Toezicht 2015, 2015, Amsterdam, p. 41.



http://archivo.parlamento.cw/downloads/15193.pdf

http://www.sintmaartengov.org/government/AZ/laws/AFKONDIGINGSBLAD/AB%2051%20Landsverordening%20wijziging%20Lvo%20MOT.pdf

http://decentrale.regelgeving.overheid.nl/cvdr/xhtmloutput/historie/Cura%C3%A7ao/144053/144053_1.html

http://www.centralbank.cw/uploads/files/Lvo_%20toezicht%20geldtransactiekantoren%20pb2014%20no.pdf

http://decentrale.regelgeving.overheid.nl/cvdr/xhtmloutput/historie/Sint%20Maarten/142460/142460_1.html

http://www.dnb.nl/binaries/Staat%20van%20het%20Toezicht%202015_tcm46-339442.pdf



PE 593.803 II - 129

Figure 5: Financial Supervision in the OCTs of the Kingdom of the Netherlands


Although legislation relating to money laundering, tax evasion and tax transparency in the

three Caribbean countries of the Kingdom (Aruba, Curaçao and St Maarten) is largely in

accordance with the EU standards, the effectiveness of this legislation leaves much to be

desired. Notably, in June 2016, St Maarten Minister of Finance launched an ‘integrity

investigation’ into the president and directors of the Central Bank of Curaçao and St

Maarten.254 These investigations are currently ongoing.

Furthermore, the three Caribbean countries of the Kingdom (Aruba, Curaçao and St

Maarten) are members of the Caribbean Financial Action Task Force (CFATF). This

organisation comprises 27 countries and states in the Caribbean Basin, Central America

and South America. Its main objective is to address the problem of money laundering,

terrorist financing and the financing of the proliferation of weapons of mass destruction in

this area by ensuring that its members comply with the FATF recommendations. In order

to fulfil its objectives, the CFATF prepares mutual evaluation reports and follow-up

reports. While the former illustrate the status of the CFATF member concerned with

respect to the implementation of the FATF recommendations before the mutual evaluation,

the latter reflect the CFATF member’s progress after the mutual evaluation.255 If the reports

indicate that the CFATF member does not comply with the FATF Recommendations, a

sanction in accordance with the CFATF procedure can follow.256 To our knowledge, so far

254 Curacao Chronicle, Sint Maarten Minister Instructs VDSM To Investigate Central Bank’s Management,

30 June 2016.

255 There are 7 Follow-up Reports and 1 Mutual Evaluation Report available with respect to Aruba;

5 Follow-up Reports and 1 Mutual Evaluation Report with respect to Curaçao and 8 Follow-up

Reports and 1 Mutual Evaluation Report with respect to St. Maarten. For further details, see

Caribbean Financial Action Task Force.

256 With respect to sanctioning, the website of the CFATF contains the following information:

‘Sanctions can include a letter describing the importance of complying; being included in a Public

Statement which can severely hinder [the Member’s] international and especially financial relations

and ultimately being suspended or terminated as a Member’. See Caribbean Financial Action Task

Force, What are the FATF Recommendations and How Do They Affect Our Members? Last visited: 23

March 2017.

The Country of the Netherlands (Bonaire, Statia, Saba included)

The Dutch Central Bank

The Country of Aruba

Central Bank of Aruba

The Country of Curaçao

Central Bank of Curacao and St.

Maarten

The Country of St Maarten

Central Bank of Curacao and St.

Maarten

http://curacaochronicle.com/politics/sint-maarten-minister-instructs-vdsm-to-investigate-central-banks-management/

https://www.cfatf-gafic.org/

https://www.cfatf-gafic.org/index.php/what-are-the-fatf-recommendations-and-how-do-they-affect-our-members


PE 593.803 II - 130

the OCTs of the Kingdom of the Netherlands have not been subject to sanctions for non-

compliance with the CFATF.

5.2 Cooperation among the Countries of the Kingdom: The St

Maarten Integrity Chamber Case

As has been mentioned above, the powers of the Kingdom to intervene in the autonomy

of the Caribbean countries when it comes to justice and financial oversight are limited. For

this reason, the Netherlands as a country within the Kingdom seeks to ‘gently force’ the

other three countries (Aruba, Curaçao and St Maarten) to cooperate in these areas.

However, as the following example shows, this is not always easy. Although each

autonomous Caribbean country is a special case, the St Maarten Integrity Chamber case

discussed below illustrates the difficulties involved in developing effective cooperation

between the Country of the Netherlands and the Caribbean countries of the Kingdom in

general.

On 30 September 2013, the Kingdom Government issued an instruction to the Governor of

St Maarten to conduct a study into the integrity of the St Maarten public administration

and the impact of organised crime on the public and private sectors of this country. The

studies were conducted by the General Audit Board (Algemene Rekenkamer) of St

Maarten,257 the Commission on the Integrity of Public Administration (Commissie Integriteit

Openbaar Bestuur)258 and PriceWaterhouseCoopers.259 Based on the results of these studies,

the Governments of St Maarten and the Netherlands signed a protocol concerning the

establishment of the so-called integrity chamber (Integriteitskamer) in St Maarten.260

The Integrity Chamber was vested with far reaching powers to oversee and improve the

quality of the St Maarten public and private authorities (in so far as the latter are under

government control) when it comes to their financial and criminal integrity. The costs of

this new institution were to be shared between the Country of the Netherlands and the

Country of St Maarten. The Integrity Chamber was to be a legal person under the public

law of St Maarten, comprising three members. Two of the members were to be nominated

by the Governments of St Maarten and the Netherlands, respectively, and the third by the

two other members. All three members of the Integrity Chamber were to be appointed by

St Maarten Government Decree. The Country of the Netherlands and the Country of St

Maarten also agreed that the law that would introduce the Integrity Chamber should be

passed by the St Maarten Parliament no later than 31 July 2015. The National Ordinance

257 Algemene Rekenkamer, Nulmeting Sint Maarten: Stand van zaken institutionele integriteitszorg,

March 2014.

258 Commissie Integer openbaar bestuur, Doing the right things right, 12 July 2014.

259 PriceWaterhouseCoopers, Integrity Inquiry into the functioning of the Government of Sint Maarten, St

Maarten, 2014.

260 Protocol tussen Nederland en Sint Maarten strekkende tot samenwerking door middel van een onderlinge

regeling op grond van art. 38, eerste lid, van het Statuut voor het Koninkrijk der Nederlanden in verband met

de instelling, de inrichting, het functioneren en de bekostiging van een Integriteitskamer op Sint Maarten of

24 May 2015.



https://www.rijksoverheid.nl/binaries/rijksoverheid/documenten/convenanten/2015/05/26/protocol-tussen-nederland-en-sint-maarten/protocol-tussen-nederland-en-sint-maarten.pdf





PE 593.803 II - 131

on the Integrity Chamber was published in the Government Gazette of St Maarten on 21

August 2015, three weeks later than expected.261

According to this legislation, the powers of the newly established institution included, inter

alia, the power to give binding advice to the Government on integrity-related issues, such

as fraud, embezzlement and favouring family members (Article 1(b)), and to oversee the

implementation of this advice (Article 3(1)). In addition, the Integrity Chamber was given

extensive investigatory powers with respect to integrity violations, such as the power to

make inquiries, to investigate all relevant documents and to enter into offices without

consent, if necessary, with the assistance of the police (Article 4). Moreover, all the parties

concerned were obliged to cooperate with the Integrity Chamber (Article 4). Where an

inquiry by the Integrity Chamber could lead to pressing criminal charges against the

persons concerned, the Integrity Chamber was obliged to report all relevant information

to the Public Prosecutor’s Office (Article 3(4)).

However, the constitutionality of this legislation was challenged by the St Maarten

Ombudsman who brought it before the Constitutional Court of St Maarten. The latter can

review the constitutionality of any act approved by Parliament and signed by the Governor

of St Maarten before its entry into force. If the Constitutional Court rules that a National

Ordinance is unconstitutional, it becomes void and never enters into force. Under the St

Maarten Constitution, the Ombudsman is the only actor who can bring a law before the

Constitutional Court.

It was the combination of the Integrity Chamber’s extensive investigatory powers that

could lead to the discovery of facts relevant under criminal law and its obligation to report

relevant information to the Public Prosecutor’s Office that led the Ombudsman to bring

the National Ordinance on the Integrity Chamber before the Constitutional Court. The

Ombudsman believed this legislative act to be in violation of several fundamental rights

guaranteed by the St Maarten Constitution, in particular the nemo tenetur-principle laid

down in Article 26, the presumption of innocence of Article 28 and the right to privacy

enshrined in Articles 5 and 7. The Constitutional Court generally agreed with the

objections of the Ombudsman and declared the National Ordinance on the Integrity

Chamber unconstitutional by its decision of 7 July 2016.262

The Country of the Netherlands and the Country of St Maarten are thus back at square

one. The above-mentioned case provides a striking illustration of the intrinsic complexity

surrounding the attempts of the Country of the Netherlands to exert influence on the

autonomous Caribbean countries of the Kingdom. Ironically, the law establishing the

Integrity Chamber that was supposed to improve the integrity of public administration in

the Country of St Maarten was struck down by the Constitutional Court of St Martin on

the grounds that it violated the fundamental rights of St Maarten citizens. At present, a

solution to this controversy is not in sight.

261 Landsverordening Integriteitskamer of 21 August 2015.

262 Constitutional Court of St Maarten, Decision of 7 July 2016, Case 2015/1.

http://www.sintmaartengov.org/government/AZ/laws/AFKONDIGINGSBLAD/AB%2018%20Landsverordening%20Integriteitskamer.pdf


PE 593.803 II - 132


The three Caribbean countries of the Kingdom of the Netherlands (Aruba, Curaçao and St

Maarten) have all adopted rather modern legislation relating to money laundering, tax

evasion and tax transparency. However, these countries face major problems in ensuring

the effectiveness of this legislation in practice. The quality of financial supervision and

enforcement are areas of particular concern. As has been shown in Chapter IV, the powers

of the Kingdom of the Netherlands to intervene in the affairs of the Caribbean countries in

matters relating to financial oversight are rather limited. Given the Kingdom’s quasi-

federal make-up, such powers belong to the autonomous spheres of the countries

themselves. The Country of the Netherlands tries to compensate for this lack of

constitutional powers on the part of the Kingdom of the Netherlands by actively promoting

cooperation with the Caribbean countries of the Kingdom. This cooperation is voluntary

and in practice is always initiated by the Country of the Netherlands. Yet, the latter faces

major difficulties in developing such cooperation. This is illustrated by the fact that the

legislation aimed at establishing the Integrity Chamber in the Country of St Maarten to

improve the integrity of the entire St Maarten government apparatus was declared

unconstitutional by the Constitutional Court of St Maarten.



PE 593.803 II - 133

Chapter VI: Financial Oversight in the Caribbean

Netherlands

The previous Chapter has shed some light on the legal, institutional and political

framework pertaining to offshore practices in the autonomous Caribbean countries of the

Kingdom of the Netherlands (Aruba, Curaçao and St Maarten). In this Chapter, such a

framework will be discussed in relation to the Caribbean territories of the Country of the

Netherlands (Bonaire, Statia and Saba), also known as the Caribbean Netherlands. As has

already been mentioned above, the constitutional status of these Caribbean territories

within the Kingdom differs substantially from that of the Caribbean countries. While the

latter are autonomous countries within the Kingdom of the Netherlands with the Kingdom

having only limited powers to intervene in their affairs, the Caribbean territories are part

of the Country of the Netherlands and are therefore subject to Dutch law and oversight by

the Dutch institutions.

Therefore, after a brief explanation of the position of the Caribbean Netherlands within the

Country of the Netherlands, this Chapter will primarily focus on the most relevant

legislation related to money laundering, tax evasion and tax transparency, in particular

insofar as it differs from that of the European Netherlands. The Chapter will also highlight

some aspects of the implementation and enforcement of this legislation. In this context, it

is important to be aware of the fact that the institutions from the European Netherlands

are in charge of the financial sector of the Caribbean Netherlands. As will be further

explained below, this can be seen as a guarantee that the Caribbean Netherlands’

legislation pertaining to combating offshore practices is in accordance with European

standards and relatively effective in practice.

6.1 The Position of the Caribbean Territories within the Country of the

Netherlands

As has already been mentioned in Chapter II, following the 2010 constitutional reform

which abolished the Netherlands Antilles, the Country of the Netherlands now includes

the European Netherlands and three territories in the Caribbean, i.e. Bonaire, Statia and

Saba.263 For reasons explained in Chapter II, since 10 October 2010, the powers of these

three Caribbean territories, and hence their room for manoeuvre in matters related to

offshore practices, are restricted by Dutch law. These territories also have a direct

relationship with the central government of the Country of the Netherlands in the

legislative and supervisory domain.

It is thus the Dutch government that has the power to make legislation on money

laundering, tax evasion and tax transparency applicable in the Caribbean Netherlands.

However, this does not mean that the legislation relating to these subjects is entirely the

263 Most inhabitants of these three Caribbean territories of the Country of the Netherlands were born

in the Netherlands Antilles (59 %) (which ceased to exist following the 2010 constitutional reform),

21 % in South and Central America, 9 % in the European Netherlands, 5 % in the USA and Canada

and 6 % in other countries. See Centraal Bureau voor de Statistiek (CBS, Central Office for Statistics),

2011.


PE 593.803 II - 134

same in the European Netherlands and the Caribbean Netherlands. Based on the principles

of legislative restraint and differentiation, some divergence between the two is accepted.

As will be illustrated below, such divergence can be observed, for example, in the field of

anti-money laundering law.

The new constitutional system within which the Caribbean territories of the Country of the

Netherlands currently operate has been evaluated by the Commission Spies five years after

the introduction of this system.264 The Commission concluded, inter alia, that so far the

inclusion of these territories within the Country of the Netherlands has not been a great

success, that the people were disappointed (also due to wrong expectations), and that the

quality of local government has not improved. According to the Commission Spies:

‘After the dissolution of the Netherlands Antilles as a level of government, two worlds collided, each

with their own context. Bonaire, Sint Eustatius and Saba are small, also from an administrative

perspective, vulnerable and isolated communities which are geared towards dealing with everyday

problems. The new administrative structure and its implementation were given shape prior to 2010

with a great level of autonomy, under the federal system of the Netherlands Antilles. Meanwhile

some 8 000 kilometres away in The Hague, the Netherlands has been formulating regulations and

policy since 2010 and has been taking decisions that impact the everyday lives of the people of

Bonaire, Sint Eustatius and Saba. The context from which the European part of the Netherlands

operates is different: within a broad European context, with ministries for general policy and

enforcing regulations with, generally, little knowledge of the local circumstances in the Caribbean,

and reasoning from the decentralised unitary state in which the autonomy of the decentral

administration can be limited relatively easily. Two different cultures and contexts, one in which

ideas and decisions are given shape, the other in which these ideas and decisions result in

consequences.’265

These findings are particularly interesting when assessing the effectiveness of the

legislation relating to offshore practices in practice.

6.2 Financial Markets

In the field of financial markets, the following legislation is relevant (since 1 July 2011): the

Regulations concerning the Financial Markets in the public entities of Bonaire, Statia and

Saba and the supervision of those markets (‘Financial Markets (BES Islands) Act’, Wet

financiële markten BES (Wfm BES)), and the Regulations for the prevention of money

laundering and terrorist financing in the public entities of Bonaire, Statia and Saba (Money

laundering and terrorism financing (BES Islands) Act (Wet ter voorkoming van witwassen en

financieren van terrorisme BES)). Furthermore, there are also regulations concerning the

monetary system of these Caribbean territories (Regels met betrekking tot het geldstelsel van

de openbare lichamen Bonaire, Sint Eustatius en Saba, alsmede enige voorzieningen van

264 Commissie Spies, Vijf jaar verbonden. Bonaire, Sint Eustatius, Saba en Europees Nederland. Rapport van

de commissie evaluatie uitwerking van de nieuwe staatkundige structuur Caribisch Nederland, The Hague,

12 October 2015. For the conclusion of this study in English, see Joined Together for Five Years: Bonaire,


265 Commissie Spies, Joined Together for Five Years: Bonaire, Sint Eustatius, Saba and the European

Netherlands, p. 6.









PE 593.803 II - 135

overgangsrechtelijke aard (Wet geldstelsel BES)). 266 The latter stipulate, inter alia, that the US

dollar is the official currency in the Caribbean Netherlands.267

The Financial Markets (BES Islands) Act builds on the former legislation of the Netherlands

Antilles, as well as the current legislation of the European Netherlands, in particular the

2006 Financial Supervision Act (Wet financieel toezicht (Wft)), and that of the EU.268 The

Financial Markets (BES Islands) Act has adopted the so-called twin peaks model

characterised by a separation between prudential supervision exercised by the Dutch

Central Bank (De Nederlandsche Bank (DNB)) and conduct supervision exercised by the

Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten (AFM)).269

The harmonisation with the legislation of the European Netherlands and the EU is also

illustrated by the adoption of (international) standards of Basel II, Solvency II and Basel III.

This harmonisation was presented as a matter of modernisation due to the constraints

posed by the principle of legislative restraint. Within the framework of financial markets,

such restraint was defended with the argument that the financial markets of Bonaire, Statia

and Saba are very small, that the product range is limited and that these financial markets

are closely intertwined with those of Curaçao and St Maarten. It is worth noting that

financial services were one of the main pillars of the economy of the former Netherlands

Antilles.270

Compared with the former legislation of the Netherlands Antilles, the Financial Markets

(BES Islands) Act is much more developed in terms of the conduct of business rules and

supervisory powers.271 One can conclude that the Financial Markets (BES Islands) Act is a

modern act on financial services. A close relationship between the banks of Bonaire, Statia

and Saba and those of Curaçao and St Maarten is still relevant and reflected in the fact that

many banks of the Caribbean Netherlands are the head offices of the banks of Curaçao and

St Maarten. The Dutch legislator had to take this into account.272 Such a close relationship

between the banks of different countries requires close cooperation between the financial

supervisors of the Country of the Netherlands (DNB and AFM) and the Central Bank of

Curaçao and St Maarten (CBCS). In order to ensure such cooperation, DNB, AFM and

CBCS make arrangements in the form of the so-called ‘memoranda of understanding’.

266 H.B. Winter, H.E. Bröring et al., Vijf jaar Caribisch Nederland. De werking van wetgeving, Groningen

2015, p. 77-83, contains a comprehensive overview of financial markets regulation in the Caribbean

Netherlands.

267 In practice, the US dollar has already been widely used.

268 Kamerstukken II 2010/11, 32 784, 3 (MvT, explanatory memorandum), p. 6, underlines the influence

of the Act on Financial Supervision of the European Netherlands. Besides, the Dutch financial

authorities (and other institutions) were consulted about the Financial Markets (BES Islands) Act.

269 In earlier days, the supervisory powers were exercised by the Central Bank of the Netherlands

Antilles and the Central Bank of Curaçao and St Maarten, respectively.

270 Kamerstukken II 2010/11, 32 784, 3 (MvT, explanatory memorandum), p. 7.

271 The Dutch General Administrative Law Act with, inter alia, general rules on law enforcement, is

not applicable in the Caribbean Netherlands. Therefore, the Financial Markets (BES Islands) Act

contains special rules on law enforcement. These rules are based on the 2006 Financial Supervision

Act (of the European Netherlands).

272 Kamerstukken II 2010/11, 32 784, 3 (MvT, explanatory memorandum), p. 4.


PE 593.803 II - 136

Box 1: Financial Supervision Legislation of Bonaire, Statia and Saba


Other relevant legislation includes, inter alia: the Decree on rules with regard to the

financial markets in the public entities of Bonaire, Statia and Saba and the financial

enterprises active in these markets (Financial Markets (BES Islands) Decree) and the

Regulations from the Minister of Finance of 25 May 2012 laying down further rules to

implement the Financial Markets (BES Islands) Act and the Financial Markets (BES Islands)

Decree (Financial Markets (BES Islands) Regulation). In addition, several policy principles

were clarified by the AFM and DNB in its policy rules on the application and

implementation of the Financial Markets (BES Islands) Act.

One can conclude that the financial markets regulation of the Caribbean Netherlands is

rather modern and comprehensive, particularly given the very small scale of the territories

concerned.

6.3 Money Laundering

A number of legislative acts has been specifically adopted with a view to combating money

laundering. The Money Laundering and Terrorism Financing (BES Islands) Act (Wwft BES)

was considered necessary to merge the Identification (Provision of Services) (BES Islands)

Act (Wet identificatie bij dienstverlening BES), the Disclosure of Unusual Transactions (BES

Islands) Act (Wet melding ongebruikelijke transacties BES) and the Cross-Border Currency

Movement (BES Islands) Act (Wet grensoverschrijdende geldtransporten BES) into one act

aimed at preventing the abuse of the financial system for money laundering and terrorist

financing. The Money Laundering and Terrorism Financing (BES Islands) Act is a modern

act based on the current international and European standards embodied in relevant

legislation of the European Netherlands and that of the EU. International agreements, such

as FATF Recommendations, are also relevant for the Caribbean Netherlands. As has

already been mentioned above, the supervisory tasks are performed by the authorities

Content of the Financial Markets (BES Islands) Act (Wfm BES):

Chapter 1. General provisions

Chapter 2. Market access

Chapter 3. General provisions governing financial enterprises

Chapter 4. Provisions governing specific categories of financial enterprises

Chapter 5. Market conduct and securities transactions

Chapter 6. Control of listed companies

Chapter 7. Enforcement

Chapter 8. Special prudential measures, emergency regulation and deposit guarantee

system

Chapter 9. Penal provisions

Chapter 10. Transitional and final provisions

Content of the Financial Markets (BES Islands) Act (Wfm BES):

Chapter 1. General provisions

Chapter 2. Market access

Chapter 3. General provisions governing financial enterprises

Chapter 4. Provisions governing specific categories of financial enterprises

Chapter 5. Market conduct and securities transactions

Chapter 6. Control of listed companies

Chapter 7. Enforcement

Chapter 8. Special prudential measures, emergency regulation and deposit guarantee

system

Chapter 9. Penal provisions

Chapter 10. Transitional and final provisions



PE 593.803 II - 137

from the European Netherlands. Apart from DNB and AFM, these also include other

authorities, in particular, the Dutch Financial Intelligence Unit (FIU Nederland).273

Box 2: Anti-Money Laundering Legislation of Bonaire, Statia and Saba


Other relevant legislation, inter alia, includes the BES Money Laundering and Terrorist

Financing (Prevention) Decree (Besluit ter voorkoming van witwassen en financieren van

terrorisme BES / Bwft BES) and the BES Money Laundering and Terrorist Financing

(Prevention) Regulation (Regeling ter voorkoming van witwassen en financieren van terrorisme

BES / Rwft BES). In addition, several policy principles were clarified by the AFM and DNB

in its policy rules on the application and implementation of the Regulations on the

prevention of money laundering and terrorist financing.

Once again, it can be concluded from the above that the anti-money laundering legislation

in the Caribbean Netherlands is quite modern and comprehensive.

6.4 Taxation

The legislation of the Caribbean Netherlands in the area of taxation can also generally be

considered adequate. Since 10 October 2010, this legislation was modernised and

technically improved, building in part on the legislation of the European Netherlands. The

Tax Act Bonaire, Saba and Statia (Belastingwet BES), the Customs and Excise Act Bonaire,

Saba and Statia (Douane- en Accijnswet BES), and the Act Introducing the Tax Act Bonaire,

Saba and Statia (Invoeringswet belastingwet BES) were published on 16 December 2010.274

The amount of taxes involved in the Caribbean Netherlands is approximately US$ 42

million.275 Some differentiation in tax regulations between the European Netherlands and

the Caribbean Netherlands is accepted. An example of such divergence is the current

straightforward system of flat income tax applicable in the Caribbean Netherlands which

273 See, from a more general point of view, also M. Fletcher, EU Crime and Policing and the OCTs, in

D. Kochenov (ed), EU Law of the Overseas, Kluwer Law International, The Hague, 2011, p. 291.

274 ‘BES’ stands for Bonaire, Statia (St Eustatius) and Saba.

275 With another US$ 10 million for labour and income tax. See H.B. Winter, H.E. Bröring et al., Vijf

jaar Caribisch Nederland. De werking van wetgeving, Groningen, 2015, p. 59.

Content of the Regulations on the prevention of money laundering and terrorist financing (Wwft BES): Chapter 1. General provisions Chapter 2. Customer due diligence Chapter 3. Disclosure of unusual transactions Chapter 4. Cross-border currency movements Chapter 5. Enforcement Chapter 6. Penal provisions Chapter 7. Transitional and final provisions

Content of the Regulations on the prevention of money laundering and terrorist financing (Wwft BES): Chapter 1. General provisions Chapter 2. Customer due diligence Chapter 3. Disclosure of unusual transactions Chapter 4. Cross-border currency movements Chapter 5. Enforcement Chapter 6. Penal provisions Chapter 7. Transitional and final provisions


PE 593.803 II - 138

differs from that adopted in the European Netherlands.276 The flat income tax is about 30 %

(< US$ 250 000) and 35 % (≥ US$ 250 000).

While building on the former legislation of the Netherlands Antilles, the customs and

excise legislation of the three Caribbean territories of the Kingdom of the Netherlands

currently in force has been simplified and modernised reflecting the EU basic customs

legislation contained in the Community Customs Code.277 Statia and Saba have retained

the free port status. The Caribbean Netherlands customs authority is part of the customs

authority of the European Netherlands headquartered in Rotterdam.278 279

6.5 Implementation and Enforcement

One can easily conclude that the Dutch Caribbean legislation pertaining to financial

markets, money laundering and taxation is generally in line with the standards applicable

in the European Netherlands and the EU. However, it is hardly a secret that in the

Caribbean countries of the Kingdom there is often a gap between the law in the books (the

adoption of a law) and law in action (its implementation). In the Dutch Caribbean, too, in

general the implementation and enforcement of legislation is problematic. According to

the Commission Spies:

‘The legal framework is paramount for promoting good administration. However, the manner in

which people give substance to their responsibilities and the instruments at their disposal in the end

determines the result. The administrative practices and the quality of the administration are first

and foremost determined by personal qualities and conduct, while the administrative culture only

has a minor influence. There is still a lot of room for improvement in this area, and this can be

achieved through education, support and collegial accountability. Achieving the necessary changes

will not happen overnight. It will require huge efforts, patience and time.’280

The problems highlighted by the Commission Spies in relation to the implementation and

enforcement of legislation by the Caribbean authorities are, to a large extent, the result of

weak governance. Despite some improvements in the recent years, the local authorities of

Bonaire, Statia and Saba seem to be still rather weak.281 This vulnerability is caused by a

276 This tax system is expected to be replaced by a new more nuanced system in the future.

277 See Council Regulation (EEC) No 2913/92); Commission Regulation (EEC) No 2454/93.

278 See H.B. Winter, H.E. Bröring et al., Vijf jaar Caribisch Nederland. De werking van wetgeving,

Groningen, 2015, p. 65.

279 See, generally, also A. Tryfonidou, The Overseas of the Customs Duties Provisions, in D.

Kochenov (ed), EU Law of the Overseas, Kluwer Law International, The Hague, 2011, p. 221.

280 Commissie Spies, Joined Together for Five Years: Bonaire, Sint Eustatius, Saba and the European

Netherlands, p. 11.

281 According to Winter, Bröring et al.: ‘In practice enforcement has improved since the transition, but

there are also shortcomings. The improvements relate to more attention being paid to enforcement

in general and supervision in particular; checks on compliance are actually being carried out in

certain areas. The professionalisation of the supervision and the intensification of inspections

contributes to compliance, not only through the use of strict enforcement tools, but also through

guidance (support). The enforceability of regulations on the islands is being negatively influenced

by a lack of capacity and expertise with regard to supervision and enforcement. Progress has been

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http://publications.europa.eu/en/publication-detail/-/publication/1c88bb6c-462b-411e-8ad6-177045d3b5ff/language-en





PE 593.803 II - 139

shortage of money and expertise, as well as the social aspects pertaining to small scale

societies where everybody knows everybody, a situation that lends itself to favouritism.282

However, it should be emphasised that this characterisation does not entirely apply to the

domains of financial markets and taxation because in these areas the institutions from the

European Netherlands are in charge, in particular the Dutch customs authority, DNB, AFM

and FIU Nederland. This implies not only supervision but also administration by the

authorities from the European Netherlands.283 The formal and practical presence of the

Dutch authorities in the Caribbean Netherlands distinguishes the institutional framework

for these Caribbean territories from that for the autonomous countries of the Kingdom of

the Netherlands (Aruba, Curaçao and St Maarten), as described in Chapter V. The

prominent role of the Dutch authorities in the Caribbean Netherlands in the financial sector

significantly reduces the gap between the law on the books and the law in action in this

sector compared to many other sectors, such as construction industry.


Bonaire, Statia and Saba, also known as the Caribbean Netherlands, are part of the Country

of the Netherlands. Therefore, Dutch law, which in many areas is based on EU law, is

applicable in their territories. As a result, even though these three Caribbean territories

currently have the OCT status, EU law indirectly influences their law. While the legislation

of the Caribbean Netherlands is not identical to that of the European Netherlands, the

former differs only to a limited extent from the latter.

The legislation of Bonaire, Statia and Saba relating to financial markets, money laundering

and taxation is quite modern and is based on relevant international and European

standards. This legislation also confers powers on the Dutch authorities at the national

level of the Country of the Netherlands with respect to its implementation and enforcement

in the Caribbean Netherlands. The Dutch authorities thus have sufficient powers to

intervene in the affairs of these Caribbean territories when it comes to combating money

made on policy development on all three islands. To what extent the actual enforcement has

improved using the administrative enforcement tools is less clear. On Sint Eustatius the enforcement

of administrative legislation through administrative bodies is not really happening: enforcement is

left to the police and judicial authorities. Certain traditions in the method of enforcement on all three

islands seem to persist. For Saba one can thereby point to the emphasis on informal dispute

resolution.’ See H.B. Winter, H.E. Bröring et al, Summary Five Years of the Caribbean Netherlands:

Working of the Legislation, Groningen, August 2015, pp. 10-11.

282 Improvements are pursued by means of close cooperation, information exchange and training.

Here the Representative of the Country of the Netherlands in the Caribbean Netherlands

(Rijksvertegenwoordiger) and the Caribbean Netherlands Service of the Country of the Netherlands

(Rijksdienst Caribisch Nederland, (RCN)) play an important role.

283 It is notable in this context is that the inhabitants of Bonaire, Statia and Saba thought that since 10

October 2010 (when these Caribbean territories became part of the Country of the Netherlands) tax

legislation has changed and that the tax amount has considerably increased. However, the change

concerned not the legislation but its enforcement. For the inhabitants of these Caribbean territories

taking tax collection seriously was a new phenomenon. See H.B. Winter, H.E. Bröring et al., Vijf jaar

Caribisch Nederland. De werking van wetgeving, Groningen, 2015, p. 70.






PE 593.803 II - 140

laundering and tax evasion and ensuring tax transparency. In this respect, the institutional

framework for the Caribbean Netherlands differs fundamentally from that for the

autonomous Caribbean countries of the Kingdom of the Netherlands discussed in

Chapter V.

Although the legislation of the Caribbean territories of the Country of the Netherlands is

largely adequate, its implementation and enforcement are not entirely unproblematic.

Despite significant progress made in the recent years in terms of ensuring the effectiveness

of the law on the books in practice, there is still room for improvement, particularly when

it comes to good governance in the Caribbean Netherlands. At the same time, compared to

many other sectors, the gap between the law on the books and the law in action is much

smaller in the financial sector where the implementation and enforcement of relevant

legislation are centralised matters dealt with at the level of the Country of the Netherlands.



PE 593.803 II - 141

Chapter VII: Key Findings and the Way Forward

The OCTs of the Kingdom of the Netherlands (i.e. Aruba, Curaçao, St Maarten,

Bonaire, Statia and Saba) operate within a complex multi-level system of

governance consisting of four levels: (1) the EU level; (2) the level of the Kingdom

of the Netherlands; (3) the level of the autonomous Caribbean countries of the

Kingdom of the Netherlands; and (4) the level of the Caribbean territories of the

Country of the Netherlands. Each level is characterised by its own constitutional

set-up, which determines the relationship between the EU, the Kingdom of the

Netherlands, the Country of the Netherlands and the OCTs of the Kingdom based

on the division of competences.

Following the recent developments in EU overseas law, the EU can play an

increasingly important role in fighting offshore practices in the OCTs of the

Kingdom of the Netherlands in cooperation with such territories. In particular, the

recent OAD equips the EU not only with soft tools but also with hard instruments,

such as the power of the European Commission to withdraw or reduce financial

aid to the OCTs that could allow the EU to impact on the OCTs when it comes to

combating money laundering and tax evasion and enhancing tax transparency.

The status of the three Caribbean countries (Aruba, Curaçao and St Maarten)

within the Kingdom of the Netherlands fundamentally differs from that of the

three Caribbean territories (Bonaire, Statia and Saba), also known as the Caribbean

Netherlands. While the former are autonomous countries within the Kingdom of

the Netherlands, the latter form part of the Country of the Netherlands and are

therefore subject to Dutch law and oversight by the Dutch institutions. This

distinction is relevant for determining the extent to which the Kingdom and the

Country of the Netherlands can interfere in the affairs of these OCTs when it comes

to offshore practices.

In the areas related to financial regulation and supervision, as well as taxation, the

powers of the Kingdom of the Netherlands with respect to the autonomous

Caribbean countries of the Kingdom are rather limited. This makes it hard for the

Kingdom to exert any significant influence on these OCTs in the fight against

offshore practices. The situation is further complicated by an uneasy relationship

between the Caribbean countries in question, on the one hand, and the Kingdom

and the Country of the Netherlands, on the other, given their colonial past and the

small scale of societies concerned.

In contrast, the Caribbean territories form part of the Country of the Netherlands

and are therefore subject to Dutch law and oversight by the Dutch institutions. As

a result, the Dutch government at the level of the Country of the Netherlands has

significant possibilities to exert pressure on the Caribbean territories in matters

relating to money laundering, tax evasion and tax transparency.

All six OCTs of the Kingdom of the Netherlands have generally adopted a rather

modern legislation pertaining to money laundering, tax evasion and tax

transparency in accordance with the relevant international and European

standards. However, the key problem faced by each OCT of the Kingdom to a

greater or lesser extent is discrepancy between the law on the books (the adopted

law) and the law in action (implementation and enforcement of the law). The


PE 593.803 II - 142

effectiveness of legislation in the autonomous Caribbean countries of the Kingdom

is undermined by two key factors: (a) structural weaknesses caused by poor

implementation of good governance principles; and (b) functional weaknesses

related to the insufficient capacity of the relevant authorities, such as a shortage of

financial and human resources and insufficient knowledge and experience.

Notably, the gap between the law on the books and the law in action is much

smaller when it comes to the financial markets and taxation in the Caribbean

territories, where the implementation and enforcement of relevant legislation are

centralised at the level of the Country of the Netherlands.

Improving the effectiveness of the existing laws in the OCTs is crucial to the fight

against offshore practices. Given the growing reach of EU overseas law, the EU

institutions could play a particularly important role in addressing the above-

mentioned problems in the autonomous Caribbean countries of the Kingdom with

respect to which the Kingdom itself has only limited possibilities to intervene. The

Country of the Netherlands in turn could play a major role in ensuring effective

implementation and enforcement of relevant legislation in the Caribbean

territories, which form part of this country.



PE 593.803 II - 143

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PE 593.803 III - 145

ANNEX III





(OCTs) of the United Kingdom, as defined in Annex II of the

Treaty on the Functioning of the European Union (TFEU),

and the relations of the United Kingdom with those OCTs


PE 593.803 III - 146

AUTHOR

This study has been written by Dr Peter Clegg of the University of the West of England,

Bristol, at the request of the Ex-Post Evaluation Unit of the Directorate for Impact

Assessment and European Added Value, within the Directorate General for

Parliamentary Research Services (DG EPRS) of the General Secretariat of the European

Parliament.

CONTACT

Department of Health and Social Sciences

University of the West of England, Bristol

Frenchay Campus

Coldharbour Lane

Bristol BS7 8LZ

United Kingdom

0044 117 3282376

[email protected]

RESPONSIBLE ADMINISTRATOR: Jan Tymowski, Ex-Post Evaluation Unit To contact the Unit, please email: [email protected]

LINGUISTIC VERSIONS

Original: EN








a copy.

Manuscript completed in January 2017.






PE 593.803 III - 147

Contents Acronyms ............................................................................................................................... III-148

Executive Summary .............................................................................................................. III-149

Chapter One – Introduction to the UK OCTs ................................................................... III-150

1.1. The UK OCTs and those relevant for the report ................................................... III-150

1.2. Economic considerations .......................................................................................... III-152

1.3. Scope and sources of the paper ............................................................................... III-153

Chapter Two: Constitutional, legal, and legislative framework .................................... III-154

2.1. Historical background .............................................................................................. III-154

2.2. West Indies, Bermuda Constitution, and Anguilla Acts ...................................... III-154

2.3. Colonial Laws Validity Act 1865 & Interpretation Act 1978 ............................... III-155

2.4. Constitutional reform in the territories .................................................................. III-156

Chapter Three: Legal & political oversight of offshore finance ...................................... III-159

3.1. Overview of the offshore sectors............................................................................. III-159

3.2. International initiatives and local legislation ........................................................ III-160

3.3. Gaps in the regulatory framework ......................................................................... III-161

3.4. Day-to-day political oversight in the territories.................................................... III-163

Chapter Four: Broader political and economic context ................................................... III-166

4.1. Political considerations ............................................................................................. III-166

4.2. Economic considerations .......................................................................................... III-169

Conclusions and Recommendations .................................................................................. III-173

List of Figures

Figure 1: The United Kingdom Overseas Territories ....................................................... III-150

Figure 2: Key Acts of Parliament defining UK – OCTs relations ................................... III-156

List of Tables

Table 1: Key statistics for those UK OCTs that are listed in Annex II of the Treaty on the

Functioning of the EU ......................................................................................... III-151

Table 2: The Legal Basis for the Territories’ Constitutions.............................................. III-155

Table 3 Examples of greater local powers in the Bermudan constitution ..................... III-157

Table 4: Key focus of territories’ offshore financial industries ....................................... III-160

Table 5: Territory growth rates, 2009-2014 ........................................................................ III-171


PE 593.803 III - 148

Acronyms AML/CFT Anti-Money Laundering and Combatting the Financing of Terrorism

BVI British Virgin Islands

EEC European Economic Community

EU European Union

FCO Foreign and Commonwealth Office

FFR Framework for Fiscal Responsibility

GDP Gross Domestic Product

IMF International Monetary Fund

INCSR International Narcotics Control Strategy Report

NAO National Audit Office

OECD Organisation for Economic Cooperation and Development

TCI Turks and Caicos Islands

UK United Kingdom

UKOT United Kingdom Overseas Territory

UN United Nations

US United States

WIA West India Act



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Executive Summary This report focuses on the OCTs of the UK; and especially those located within the

Caribbean and West Atlantic. Relations between the UK and its so-called Overseas

Territories have been shaped by many centuries of history. More contemporary relations

were established in the 1960s with two key Acts of Parliament – the West Indies Act 1962

and the Bermuda Constitution Act 1967, later supplemented by the Anguilla Act 1980.

These Acts give the UK sovereign power over the territories, and this is reinforced by the

Colonial Laws Validity Act 1865 and the Interpretation Act 1978. The resultant authority

allows the UK to create constitutions for each territory via Orders in Council. Orders have

also been used to introduce more particular pieces of legislation. Therefore, on first sight it

seems that the UK does have clear authority to impose changes to improve the territories’

offshore practices.

However, the reality is rather different, and there are various reasons for this. The report

considers them in some detail. First, the constitutions of the territories have always

provided a separation of responsibilities between the Governor, appointed by the UK, and

the local territory government. Further, the constitutions that have been more recently

introduced – through consultation, not imposition – have given greater autonomy to the

territories. It is true that the UK has retained key powers for the Governor, for instance in

regard to defence and the public service, but there is a clear dilution and blurring of UK

power from those original Acts of Parliament. This picture is complicated further because

each territory has slightly different levels of autonomy, including in relation to their

offshore financial sectors. Second, day-to-day relations between the Governor and the

territory government can also be difficult and sometimes conflictual in the area of offshore

finance. Third, there are political and economic factors that help shape relations, such as

the UK’s sensitivity to being seen as a ‘colonial’ power if it intervenes too strongly and too

often, or the demand of the UK that the territories should be economically self-sufficient.

By exploring these issues, with the support of case studies, the report offers a nuanced

picture of how relations are carried out and how despite the UK’s sovereign authority on

paper, in practice its role is checked.

So the deep-seated complexities of managing the territories; the reluctance of the UK to

allocate more funds to them, including to help diversify their economies; the view that the

territories should largely manage themselves; together with the absence of concerted

international action, means at this time the UK is unlikely to take a more forceful role in

addressing the concerns about the territories’ offshore practices related to tax evasion,

money laundering, and tax transparency.


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Chapter 1: Introduction to the UK OCTs

1.1. The UK OCTs and those relevant for the report

There are 14 UK Overseas Territories in total spread across the globe (see Figure 1); twelve

of which are associated with the EU and are known as Overseas Countries and Territories

(OCTs)284. Each is a separate constitutional unit, and so not part of the UK, but the UK is

the sovereign power. The vast majority of UK OCTs are economically self-sufficient and

have interests in a range of industries. Bermuda, British Virgin Islands (BVI), and Cayman

Islands have large financial centres and are successful tourism destinations; while the

Falkland Islands economy is based on fisheries, tourism, and agriculture. Thus these

territories have high GDPs per capita. Yet their economic vulnerability is a concern. Other

territories are less successful, particularly Montserrat and Pitcairn, both of which receive

budgetary aid from the UK (see Table 1).

Figure 1: The United Kingdom Overseas Territories

Source: Map produced by Christian Dietrich, EPRS.

284 The special character of Gibraltar was described in the introductory part of this Study, while the

Sovereign British Bases on Cyprus (Akrotiri and Dhekelia, covered by Article 355(5)(b) TFEU) remain

out of the scope of this analysis. Ascension Island and Tristan de Cunha form part of one OCT with

Saint Helena.



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Table 1: Key statistics for those UK OCTs that are listed in Annex II of the Treaty on the Functioning of the EU285

Territory Population GDP per capita

(US$) Key industries

UK budgetary

aid

Anguilla 16 318 20 000

Tourism,

construction,

financial

services

No

Bermuda 65 091 85 747

Financial

services,

tourism

No

British Virgin

Islands 29 537 32 111

Financial

services,

tourism

No

Cayman Islands 58 238 59 657

Financial

services,

tourism

No

Falkland Islands 2 562 92 675

Fisheries,

agriculture,

tourism

No

Montserrat 4 922 11 896

Construction,

tourism,

agriculture

Yes

Pitcairn 54 N/A

Subsistence

fishing,

horticulture,

and sale of

handicrafts

Yes

St Helena,

Ascension &

Tristan da

Cunha

5 134 6 799 Tourism, coffee,

stamp sales Yes

Turks & Caicos

Islands 33 740 22 245

Tourism,

construction,

financial

services

No

285 UK OCTs official government statistics, and Foreign and Commonwealth Office, 2012a. South

Georgia and the South Sandwich Islands, British Antarctic Territory, and the British Indian Ocean

Territory have no permanent population and are thus excluded from further analysis.


PE 593.803 III - 152

The nine territories are not part of the EU and therefore are not directly subject to EU law,

but they do have associate status – under Part IV of the Treaty on the Functioning of the

EU. The key articles within Part IV are Articles 198 to 203, which set out the underlying

basis of the relationship, focusing on the promotion of economic and social development;

the establishment of close economic relations; the importance of non-discrimination in

economic matters; and the right to free movement of OCT workers.286 Links between the

territories and the EU were established in 1973 on the UK’s accession (to the European

Economic Community, EEC), although the OCTs more generally were referenced in the

original Treaty of Rome (Treaty Establishing the EEC) in 1957. This report does not cover

all UK OCTs, just those that have a stake in the offshore financial industry. So the report

concentrates on Anguilla, Bermuda, BVI, Cayman Islands, Montserrat, and Turks and

Caicos Islands (TCI).

1.2. Economic considerations

As was noted above the UK OCTs have relatively high GDPs per capita, although this was

not always the case. After the Second World War and for the following two decades the

territories remained relatively underdeveloped, with a strong focus on agriculture, some

fishing, a few light industries, and salt extraction. However, circumstances changed from

the 1960s, particularly in Bermuda and Cayman Islands. From the mid-1960s Cayman

passed a series of new banking laws and made extensive investments in infrastructure.287

The result, with assistance from the City of London amongst others, was the growth of a

large offshore financial sector with no income, property, inheritance, or capital gains taxes.

The tourism sector also began to grow. Further, Bermuda started to properly develop its

offshore financial interests at this time – a key piece of legislation being the 1958 Exempted

Partnerships Act, which allowed non-residents to operate out of partnerships formed in

the territory. Later, Bermuda took a significant stake in the captive insurance market.288 A

similar story was seen in BVI after the 1984 enactment of the International Business

Companies Act which saw the incorporation of about 3,000 companies in the territory

between July 1984 and December 1986.289 The other territories also saw their economies

develop from the 1980s, although largely based on tourism and construction rather than

offshore finance. TCI, for example, benefitted from the completion of an international

airport on Providenciales in 1983. However, the Montserrat economy was knocked back

significantly by the impact of the Soufrière Hills Volcano in the late 1990s.

The profile of the economies remains very similar today. So in Cayman Islands, financial

services contribute around 50 % of GDP, and the territory is the world’s sixth largest

banking centre and the largest domicile for hedge funds. Bermuda is the leading centre for

captive insurance, with financial services providing about 40 % of its GDP; while BVI is the

world leader for company incorporation. All have high GDPs per capita. Anguilla and TCI

286 Official Journal of the EU, 2012.

287 Cichon, 1989.

288 Palan, et. al., 2010.

289 Cichon, 1989, 503.



PE 593.803 III - 153

are also relatively prosperous. Montserrat is the exception; it still struggles to pay its way

and is reliant on British aid.

1.3. Scope and sources of the paper

This research paper takes at its starting point the particular economic profiles of the six

OCTs (as identified at the end of chapter 1.1.) of the UK and their involvement – to a greater

or lesser extent – in the offshore financial sector. The remainder of the paper is divided into

three main sections, followed by Conclusions and Recommendations. Chapter Two

assesses the constitutional, legal, and legislative framework that shapes relations between

the UK and its territories. This is important as it sets out the balance of powers that exists

between the two sides, and the extent to which – at least in theory – the UK can enforce its

will on the territories. It is important to note here that the governing framework is not

uniform across the territories, and this has implications for what the UK can do to shape

their offshore financial sectors. Chapter Three analyses the local legislation and

international initiatives that regulate the offshore industries, and the day-to-day relations

between the UK-appointed Governors and the OCTs themselves. This explains why certain

actions that in theory might be possible are more difficult to enact in practice. Chapter Four

focuses on the broader political and economic factors that help define the UK’s approach

to its OCTs in relation to offshore finance, and how the territories perceive the UK. An

appreciation of this broader context is important because it affords a greater level of nuance

when considering potential UK actions.

The research for this report is based on a wide range of quantitative and qualitative sources.

Specifically, a variety of primary sources are referenced, such as Acts of Parliament, recent

Constitutions, Orders in Council, and governmental and non-governmental reports.

Further, important secondary sources, including academic literature and newspaper

articles are considered.


PE 593.803 III - 154

Chapter 2: Constitutional, legal, and legislative framework

2.1. Historical background

The link between the UK and the territories goes back 350 years or so. Anguilla was

colonised by English settlers in about 1650; BVI saw its first English settlers in 1666 before

Tortola was annexed by the British Crown in 1672; Cayman Islands had informal English

settlements from the late 1650s, although control was not formalised until the 1730s;

Montserrat was first settled in 1632 before being lost to France twice and it was not until

1783 that British control was consolidated; and TCI has been overseen by the British since

1766. Despite quite similar initial histories there were later differences in the territories’

political development. For example, some were governed in regional groupings (such as

Montserrat within the Leeward Islands Federation), while others were ruled by

neighbouring colonies (Cayman Islands by Jamaica, 1863-1962, and TCI by the Bahamas,

Jamaica and then again by the Bahamas up until 1973). Bermuda, the UK’s oldest territory

(from 1620), has never been governed as part of a wider federation or by another colony.

A key change for the territories was the growing demands for self-rule and possible

independence across the English-speaking Caribbean from the 1930s onwards. Although

the loudest voices for change came from the larger territories, the smaller ones were also

impacted, most particularly with the creation of the Federation of the West Indies in 1958

that included Anguilla (as part of St Kitts – Nevis – Anguilla), Cayman Islands (as part of

Jamaica’s administrative structure), Montserrat, and TCI (again linked to Jamaica).

However, the Federation was weak from the outset and collapsed as Jamaica and Trinidad

and Tobago demanded independence in their own right. The outcome was independence

for the larger countries without their dependencies and a new legal framework for the

smaller ones. Over the next 20 years the majority of these territories also gained their

independence, but a few (the OCTs) did not follow suit.

After the collapse of the Federation of the West Indies the UK reconfigured its relationship

with each of the territories that retained formal ties with London. Three Acts provide the

basis upon which the constitutions of the territories are now made.

2.2. West Indies, Bermuda Constitution, and Anguilla Acts

The key provisions within each Act are as follows:

West Indies Act 1962, Section 5. – (1)

Her Majesty may by Order in Council make such provision as appears to Her expedient

for the government of any of the colonies to which this section applies, and for that purpose

may provide for the establishment for the colony of such authorities as She thinks

expedient and may empower such of them as may be specified in the Order to make laws

either generally for the peace, order and good government of the colony or for such limited

purposes as may be so specified subject, however, to the reservation to Herself of power to

make laws for the colony for such (if any) purposes as may be so specified.



PE 593.803 III - 155

Bermuda Constitution Act 1967, Section 1. – (1)


for the government of Bermuda.

Anguilla Act 1980, Section 1. – (2)


for and in connection with the government of Anguilla.

Table 2: The Legal Basis for the Territories’ Constitutions

Act Date Territories

West Indies Act 1962 BVI, Cayman Islands,

Montserrat, & TCI

Bermuda Constitution Act 1967 Bermuda

Anguilla Act 1980 Anguilla

These Acts allow the constitution of each territory to be established via an Order in Council.

As Hendry and Dickson argue, each constitution ‘is legally enacted by Her Majesty the

Queen, by and with the advice of Her Privy Council, acting on the recommendation of

United Kingdom Ministers’.290 So final constitutions are implemented via an Order in

Council, and according to the letter of the legislation this can be done without any approval

from, or consultation with, the UK Parliament or local territory governments or

legislatures. In addition, it is important to note that under WIA 1962 the territories are

referred to as ‘colonies’.

2.3. Colonial Laws Validity Act 1865 & Interpretation Act 1978

The three Acts noted above are complemented by two other Acts of Parliament in

particular (see Figure 2). They are the Colonial Laws Validity Act 1865 and the

Interpretation Act 1978. The Colonial Laws Validity Act 1985, Section 2 states:

Any colonial law which is or shall be in any respect repugnant to the

provisions of any Act of Parliament extending to the colony to which such law

may relate, or repugnant to any order or regulation made under authority of

such Act of Parliament, or having in the colony the force and effect of such

Act, shall be read subject to such Act, order, or regulation, and shall, to the

extent of such repugnancy, but not otherwise, be and remain absolutely void

and inoperative.

This Act was introduced to remove inconsistencies between UK and local legislation, and

to ensure local legislation is not in contradiction to any UK Act of Parliament. This means

290 Hendry and Dickson, 2012, 14.


PE 593.803 III - 156

in essence that territory constitutions cannot be altered by the enactment of local

legislation. Also, all territories that come under this legislation are recognised as ‘colonies’,

so both Anguilla and Bermuda come under this heading, even though they are not

overseen by WIA 1962. The Interpretation Act 1978, meanwhile, gives the UK government

(under section 14) the power to amend or revoke Orders in Council. Further, it reinforces

the terminology of ‘colony’ in relation to the UK OCTs (under Schedule 1).

Figure 2: Key Acts of Parliament defining UK – OCTs relations

It is clear that the Crown (i.e. the UK government) via Parliament is supreme when it comes

to enacting legislation in relation to the territories. However, the Acts of Parliament noted

above, particularly West Indies Act 1962, Bermuda Constitution Act 1967, and Anguilla

Act 1980 are largely a means to an end to facilitate the establishment of constitutions for

each territory. On occasion, Orders in Council have also been used to introduce more

particular pieces of legislation. The UK can do this because it has a general power to

legislate; although for Bermuda no such power exists. The major instances when the UK

has enforced changes in offshore practices are considered later on in the report.

2.4. Constitutional reform in the territories

Constitutional renewal has been a regular feature of the relationship between the UK and

its territories. For example, since 1962, BVI has had new constitutions in 1967, 1976, and

2007, and for TCI in 1962, 1976, 1988, 2006 and 2011. Although, Bermuda’s 1968 constitution

remains in place, albeit with some amendments.291 Indeed, Bermuda stands somewhat

apart due to the significant autonomy that was enshrined within the 1968 constitution, in

the expectation at that time that the territory would move to independence soon

afterwards; although of course that did not happen. Bermuda wished to retain the link

291 See Bermuda Constitution Amendment Order 2003.

West India Act 1962

Bermuda Constitution Act

1967

Anguilla Act 1980

Colonial Laws

Validity Act 1865



PE 593.803 III - 157

with the UK, because it appreciated, and still appreciates, the advantages it provides in

terms of a measure of sovereign protection, which helps to reassure potential investors.

The other territories share that view. The influence of English law and language and even

the ‘pomp and pageantry of the colonial government, with its venerable yet quaint British

customs, are used to sell the islands as changeless (and hence stable) to both tourists and

financiers’.292 Some local powers which Bermuda, but not other territories have been

afforded, are presented in Table 3. Some of these have implications for the levers that the

UK has at its disposal when trying to enact change, including in relation to offshore

practices.

Table 3: Examples of greater local powers in the Bermudan constitution

1. There is no reserved power for the UK to legislate for Bermuda by Order in Council.

2. The Governor does not chair the Cabinet.

3. Bermuda’s government has the power to appoint a political attorney general.

4. The power of the UK to disallow laws enacted by the local legislature is very restricted.

For the other territories (with the exception of Anguilla that has not completed its

constitutional review process) negotiations for the most recent constitutions began in 2001.

This corresponded with the ‘Partnership for Progress and Prosperity’ White Paper

published by the UK government in 1999.293 For the first time the process was supposedly

“locally owned rather than directed from London”.294 As a result the territories hoped that

quite fundamental reform would be undertaken. This impression was reinforced when the

Foreign and Commonwealth Office (FCO) failed to make its own position clear, including

the extent to which it would accept changes to the existing constitutions.

With the UK faced with growing demands on the part of the territories for significant

reform, it finally set out its ‘red lines’ beyond which change was not possible. In a

memorandum submitted on 27 October 2003 by the FCO Minister Bill Rammell to the

House of Commons Foreign Affairs Committee strict limits were placed on territories’

constitutional room for manoeuvre. The final sentence of the memorandum stated:

“O[verseas] T[erritories’] governments should not expect that in the Constitutional

Reviews … the UK will agree to changes in the UK Government’s reserved powers, or

which would have implications for the independence of the judiciary and the impartiality

of the civil service’.295 So the constitutions that resulted were certainly shaped by the

territories, thus highlighting a dilution of the supremacy of the UK Parliament in enacting

new constitutions as set out in WIA 1962, but it was clear the UK government was

determined to retain many key powers and responsibilities, and was not going to allow

292 Roberts, in Aldrich and Connell, 1998, 88.

293 FCO, 1999.

294 Foreign Affairs Committee, 2014, 7.



PE 593.803 III - 158

the territories to move towards the Bermuda constitutional model. When the constitutions

were enacted, all resulted in further autonomy for the territories, but in fairly limited

ways.296 For example, a National Advisory Council was created in Montserrat to advise the

Governor on internal security and police matters and BVI, Cayman Islands and Montserrat

were given more of a role in international affairs.

Key findings

The UK has supreme authority over the territories as set out in the five key Acts of

Parliament, and on paper that authority appears clear-cut. The terminology of “colony”

which is used reinforces this impression.

However, it is apparent within each territory’s constitution the power of the UK and the

Governor is checked.

Although within limits, recent constitutional review processes have had sizable local

territory involvement, and have awarded more autonomy to the territories.

296 Clegg and Gold, 2011, 125.



PE 593.803 III - 159

Chapter 3: Legal & political oversight of offshore finance

As the previous chapter highlights the relationship between the UK and its OCTs has

evolved over time, and is now framed by some key pieces of legislation and their own

bespoke constitutions. Each allocates duties between the Crown (i.e. the UK and the

Governor) and the territory. Those powers generally reserved for the Crown include

defence, external affairs, internal security, including the police, and the public service;

while territory governments have control over all aspects of policy that are not overseen

by the Crown including the economy, immigration, and education.

In relation to offshore finance oversight is more nuanced, both in terms of the legal

framework in place and how each constitution sets out who has day-to-day responsibility

for the sector. So for some territories the Governor takes that role, while for others the local

territory is responsible.

This chapter considers the most important local legislation and international initiatives that

regulate the offshore industries, and how political oversight operates.

3.1. Overview of the offshore sectors

Although each territory has an interest in offshore finance, they differ markedly in terms

of the kinds of services they offer (see Table 4) and the size of the sector. The largest and

most ‘traditional’ offshore financial industries can be found in BVI and Cayman Islands.

The BVI is the world’s leading centre for company incorporation, with around 500,000

active companies. The International Monetary Fund (IMF) in 2010 estimated, perhaps

conservatively, that BVI companies held over US$ 600 billion in assets’ arguing that the

territory ‘holds an important place in the global financial infrastructure’.297 As part of its

offering the BVI is a leading domicile for mutual funds, shipping registration, hedge funds

and captive insurance.

The Cayman Islands, meanwhile, is the world’s sixth largest banking centre, with a specific

interest in hedge funds and captive insurance companies. In June 2015 it had banking

assets worth US$ 1.4 trillion.298

The other territory with a sizeable financial services sector is Bermuda, but the focus is on

insurance, reinsurance and captive insurance. It is the world’s third largest reinsurance

centre and the second largest captive insurance domicile. Bermuda does not permit

offshore banks or shell companies.

The remaining OCTs have much smaller and less well developed offshore sectors. Anguilla

has a stake in the captive insurance market; Montserrat has four offshore banks; while TCI

297 IMF, 2010, 6.

298 INCSR, 2016, 92.


PE 593.803 III - 160

is gaining popularity as a domicile for niche US manufacturer-owned offshore reinsurance

companies called Producer Owned Reinsurance Companies.

Table 4: Key focus of territories’ offshore financial industries

Territory Focus of offshore sector

Anguilla Captive insurance

Bermuda Insurance, reinsurance, captive insurance

BVI Company incorporation

Cayman Islands Hedge funds; captive insurance

Monserrat Banking

TCI Reinsurance

3.2. International initiatives and local legislation

In recent years there has been significant international and local action to improve the

oversight and probity of offshore financial centres. For example internationally there has

been the US Foreign Account Tax Compliance Act, the OECD’s Common Reporting

Standards, the EU’s Savings Tax Directive (now repealed); and the ‘black lists’ established

by bodies like the OECD and IMF. The UK OCTs are compliant or moving towards

compliance in relation to these international commitments. The adoption of these

standards is a joint UK/territory undertaking, with agreement needed from both parties;

although the UK can put significant pressure on the territories if they resist. One example

was the EU’s Savings Tax Directive, which provoked strong resistance from Cayman

Islands in particular (see Case Study 1).

Case Study 1 – UK attempts to introduce the EU savings tax directive in the territories

EU Economics and Finance Ministers reached an agreement on the ‘Directive on the Taxation

of Savings’ in January 2003. Under the proposal “each member state would ultimately be

expected to provide information to other Member States on interest paid from that Member

State to individual savers resident in other Member States”. The UK took the decision that the

directive should also apply to its OCTs. Most of the territories were prepared to accept the

directive, but Cayman Islands was not.

In response, UK Chancellor Gordon Brown threatened to issue an Order in Council against the

Cayman Islands that would force the territory to adopt the directive. This threat led McKeeva

Bush, the Cayman Islands’ Leader of Government Business to accuse the UK of behaving like

the colonial power of old, ruling by dictat and treating the island’s citizens like slaves. However,



PE 593.803 III - 161

Cayman Islands reached an agreement with the UK over the implementation of the directive.

Agreement was possible because of the growing realisation on the part of Cayman Islands that

the directive was going to be imposed one way or another. In addition, the other territories

had by this time signed up to the directive, and thus Cayman Islands was isolated in its

opposition to the measure. Further, the UK offered Cayman Islands a number of compensatory

measures to offset any possible negative effects of the directive. In retrospect the UK

authorities recognised that a better balance was needed between the implementation of

measures and the process of consultation. This case study illustrates: (1) that the UK can take

action against the territories in relation to offshore financial affairs; (2) compromise in the end

was possible; and (3) the initial very strong reaction of the Cayman government to the UK’s

threat to impose the directive via an Order in Council.

At the local level too attempts have been made to boost regulation in the offshore sector,

across the areas of tax evasion, money laundering and tax transparency, again with the

territories and the UK working together. Examples include:

BVI Business Companies Act (Amended) (2012): Obliges the registered agent to keep

updated identify information on the owners of bearer shares and on the custodian

holding those shares.

Bermuda Proceeds of Crime and Related Measures Amendment Act and the

Transnational Organized Crime Act (2013): Incorporates requirements of the

International Terrorist Financing Convention and the UN Convention against

Transnational Organized Crime.

Cayman Islands Directors Registration and Licencing Law (2014): Holds company

directors and leaders of certain financial entities to higher standards and limit the

instances of fraud.

TCI Trust Companies (Licensing and Supervision) Ordinance (2015): More clearly

delineates and improves licensing requirements, and enhances existing, as well as

introducing new requirements, for prudential reporting, including in respect to capital

and governance.

3.3. Gaps in the regulatory framework

Despite the efforts to improve regulatory standards in the offshore financial sectors of the

OCTs, problems remain in all of them. In the smallest jurisdictions (Anguilla and

Montserrat) inadequate regulatory capacity is a key problem.

For Montserrat, the US Department of States argues, ‘[its] Financial Services Commission

is still not adequately structured and staffed to effectively carry out its functions. There are

insufficient human resources, and the money laundering investigations staff also perform


PE 593.803 III - 162

other policing functions’.299 In addition, there are difficulties in recruiting and retaining

staff. One outcome, is that the number of suspicious activity reports is low, and the number

of local prosecutions is even lower. As Michael Foot, who undertook a review of the

offshore financial centres, argued, ‘… it is likely that suspicions will remain in some

quarters about the vigour with which prosecutions are pursued’.300 This perception of gaps

in the regulatory framework causes lower level problems too.

As the Report for the Anguilla Financial Services Commission stated, ‘inspections noted a

number of areas where service providers exhibited a low level of compliance with the

AML/CFT [Anti-Money Laundering and Combatting the Financing of Terrorism]

legislation, particularly in training and awareness, policy and systems and controls’.301

Other concerns in the two territories relate to the level of anonymity and confidentiality,

and inadequate checks on the cross-border transportation of currency. On the former, the

US Department of State argues, ‘the true nature of business undertakings [in Anguilla] is

not always verifiable’.302

Similar concerns are also present in the larger jurisdictions, particular BVI and Cayman

Islands. For example, capacity issues and the small number of successful local prosecutions

have been noted in the recent past.303 The US State Department records that BVI and

Cayman Islands both had only two convictions in 2015, despite the size of their sectors.

Further, as the US Department of State reported in regard to Cayman Islands, ‘there

remains a lack of penalties for failing to report ownership and identity information, which

undermines the effectiveness of its identification obligations’.304

Other challenges include weaknesses in financial reporting and recording keeping; and

limited access to beneficial ownership information.305 The US Department of State noted

that BVI ‘does not require a statement of authorized capital, and the lack of mandatory

filing of ownership information pose significant money laundering risk’.306 Because of

these concerns both BVI and Cayman remain on the US Department of State’s list of

countries/jurisdictions of concern in relation to money laundering and financial crimes. In

addition, local legislation has been passed, notably in BVI, to increase the penalties against

whistle-blowers.

In 2014 BVI passed the Computer Misuse and Cybercrime Act, which mandates prison

sentences of up to 20 years for data whistle-blowers, and sentences of up to 15 years for

299 INCSR, 2016, 321.

300 Michael Foot, 2009, 55.

301 Anguilla Financial Services Commission, 2013, 15.

302 INCSR, 2016, 29.

303 NAO, 2007; Foot, 2009; INCSR, 2016.

304 INCSR, 2015, 94.

305 See Global Forum, 2011, 7.

306 INCSR, 2015, 75.



PE 593.803 III - 163

anyone who publishes the data that is obtained “without lawful authority”.307 308 Therefore,

there are gaps in the regulatory framework, and the remainder of this chapter and the next

considers why these gaps may exist.

3.4. Day-to-day political oversight in the territories

In Anguilla, Montserrat and TCI, the Governor is ultimately responsible for the offshore

sectors. They oversee the licencing of new offshore financial business in the territories, and

work with each financial services authority to ensure the sector is managed to the required

standards. Governors also appoint all of the members of the financial services authorities.

However, as was seen in Section 3.3 there are capacity and other problems. The problems

can be explained by several inter-linking factors.

First, the role of the Governor requires a difficult balancing act, as Hendry and Dickson

argue: ‘Governors ‘wear two hats’, because they head the governments of the territories

but are appointed on the advice of, and report to, the Secretary of State’.309 In other words,

whilst they are accountable to London they do have responsibilities for representing the

views of local politicians and the interests of the local economy. This sometimes means

they recognise the need to maintain existing offshore practices, and their focus on good

government is diluted.

Second, despite the Governor being in a key position, funding for regulating the sector is

provided by the territory itself, either directly from the local government or via a

proportion of the fees collected from the industry. Foot argued ‘these jurisdictions must

explain how and when these resources will be provided’,310 and more recently FCO

minister, Mark Simmonds, made clear, ‘… the regulation of the financial services sector for

overseas territories is ultimately a matter for the jurisdiction of individual territories’.311 So

there can be a disconnection between what the Governor wants and what the local territory

is prepared to fund.

Third, the work of Governors is made more difficult by being faced in the territories with

‘close communities with personal or extended family relationships between officials and

citizens, and small legislatures with a lack of separation of duties and membership between

the executive and the elected assembly’.312 It is often challenging for the Governor to

penetrate these byzantine local networks.

307 Chavkin, 2014.

308 The UK has power to disallow a law enacted by the legislature of a territory, but it is very rarely

used, and was not used in this case. However, the Governor (and other stakeholders) made

representations to the BVI government that the legislation should be amended to accommodate a

public interest defence. A limited one was added.

309 Hendry and Dickson, 2011, 37.

310 Foot, 2009, 41.

311 European Committee B, 2013, 19.

312 NAO, 2007, 31.


PE 593.803 III - 164

Fourth, constitutions provide many opportunities for turf wars between the Governor and

local Ministers. As Taylor argued, ‘In my time in Montserrat Ministerial attempts to

encroach on the Governor’s areas of responsibility and to challenge his powers were the

normal stuff of day-to-day administration as they are to a greater or lesser extent in all the

Territories’.313 These turf wars often apply to the management of the offshore financial

industries.

In the other territories, their offshore sectors are managed by Financial Services

Commissions, but without any direct role for the Governor. However, in reality the UK

works with the territories to improve their regulatory standards and as was highlighted in

Section 3.2 it can place pressure on them to accept new initiatives. However, there is almost

always a line beyond which the UK will not cross. One recent example is the decision of

the UK not to force its OCTs in the Caribbean to create registries of beneficial ownership

that are open to the public. The opposition Labour Party argued the fact that Cayman

Islands was claiming a victory against the UK showed Prime Minister David Cameron’s

‘grand claims about his record on tax transparency are coming apart at the seams’.314

Although, the constitutional settlement in relation to offshore finance provides the

territories with sizeable freedom of action, even when the Governor is in charge, and

consultation is preferred when the UK believes certain initiatives should be implemented,

there is one case in the late 1980s, which shows that the UK can take much stronger action.

Although some time ago, the case is important to highlight here because it illustrates that

the UK does have the power, if it wants to use it, to establish a more significant level of

control over the territories’ offshore industries. The case was Montserrat, when the entire

sector was tarnished by corruption and mismanagement (see Case Study 2). This was

clearly an extreme instance, but it does show that strong UK action is possible to deal with

regulatory weakness.

313 Taylor, 2000, 339.

314 Wintour, 2016.



PE 593.803 III - 165

Case Study 2 – Montserrat and the loss of control over its offshore financial sector

In the early to mid-1980s Montserrat witnessed the growth of an offshore financial sector

under the control of the Montserrat government, in part to meet a UK target for phasing out

budgetary aid. However, by the end of the decade there were concerns over the probity of a

number of offshore banks in relation to corruption and money-laundering, and the UK

government through the Governor started to take a leading role in investigating the sector, via

a task force.

In July 1989 tensions between the Governor and the Montserrat government came to a head

when the former ordered police officers to raid one of the banks that had been accused of

breaches of banking regulations without the agreement or even knowledge of the local

government. At that point Chief Minister, John Osbourne, accused the Governor of acting

“high-handedly” and impinging on the constitution. However, the role of the FCO was already

sizeable. In February, the FCO had appointed Rodney Gallagher, of the consultants Coopers

and Lybrand Deloitte, to carry out a review of its offshore financial sector. The review found

most of the islands’ banks were involved in money laundering, while the island’s police

uncovered a conspiracy involving 20 banks. Ultimately, over 90 % of the banks on Montserrat

had their licences revoked. The Gallagher report criticised the Montserrat government for its

“flawed administration of offshore banking including its failure to apply existent laws of

scrutiny and discipline”. Gallagher recommended that most of the banking and insurance

legislation should be replaced, and the industry be removed from local Ministerial control and

placed under the authority of the Governor. Osbourne railed against the “disgusting”

proposals, but ultimately a new constitution was introduced by Order in Council in 1989, which

included offshore finance in the Governor’s portfolio of responsibilities. This case is important

as it illustrates: (1) the power of the Governor to intervene even though he did not have any

specific authority to do so; (2) the use by the UK government of a commission of inquiry to

shed light on an issue of concern; and (3) the determination of the UK to place offshore finance

under the control of the Governor as part of a new constitution implemented by Order in

Council.

Key findings

The offshore financial industries in the territories vary both in size and the type of

services that are provided.

International and local oversight of the sector has been strengthened in recent years,

but significant deficiencies remain.

Several reasons for this are linked to the often awkward management of the sector

between the Governor, the UK, and local territory government.

The UK is reluctant to go too far in getting the territories to alter their regulatory

frameworks, but in the case of Montserrat in 1989 UK action was firm and decisive via

the use of its constitutionally reserved powers.


PE 593.803 III - 166

Chapter 4: Broader political and economic context

So far the report has considered the legal, legislative, and constitutional aspects of the

relationship between the UK and its territories, and how it impacts on offshore practices.

It is clear that the division of powers and responsibilities are blurred, and when one

includes the broader political and economic context of relations then the practical authority

of the UK is further constrained.

This chapter therefore considers the key political influences that shape the relationship,

such as the view of the UK towards democratically-elected governments in the territories

and the UK’s sensitivity to being seen as a ‘colonial’ power.

The economic context is also important here. As is highlighted in Table 1 the only territory

in the Caribbean that receives budgetary aid from London is Montserrat, and this is

because of the long-term effects of the volcano. Before that Montserrat had been largely

economically self-sufficient for several years. Indeed, economic self-sufficiency is an often

repeated mantra of the UK, and this is a central aim to uphold. The economic problems

that have faced the global economy over the last decade and which have also impacted on

the territories have not changed this view; indeed they have may strengthened it. In turn

this has had implications for the management and oversight for the UK OCTs offshore

financial industries.

4.1. Political considerations

The final section of Chapter Three highlighted some of the day-to-day pressures faced by

the Governors in the OCTs in relation to managing their offshore sectors. There are also

other issues – at a broader level – that have an impact, and they are considered within this

chapter.

In terms of the direct relationship, the UK is reluctant to use its full powers, even in areas

where the Governor has responsibility – rather consensus and persuasion is preferred. The

UK is aware of the importance of maintaining good relations with democratically elected

governments. Further, the UK government’s position is that it should help ‘the Territories

run themselves effectively and not run them itself’.315 A further constraint is the limited

power the Governor has in certain situations. There remains a problem with issues that are

in the mid-spectrum. As Clegg and Gold said ‘the Governor can use his constitutional

powers including Commissions of Inquiry, and the UK government can introduce Orders

in Council, but there is a reluctance to do this because of the controversy they cause’.316

Also, ‘Governors have few intermediate levers between ... influence on the one hand and

the constitutional power on the other, despite the responsibilities they must discharge’.317

315 FCO, 2012b, 2.

316 Clegg and Gold, 2011, 123.

317 NAO, 2007, 26.



PE 593.803 III - 167

In consequence, concerns that are serious but not extremely so are sometimes left

unattended or dealt with inadequately and thus are allowed to worsen. The serious recent

case in the TCI regarding financial corruption and mismanagement is such an example.

Concerns over low-level malpractice were left largely unattended, which allowed much

more serious misconduct to take root (see Case Study 3).

Issues also exist in Whitehall, particularly in terms of continuity of personnel both at

ministerial and civil service level. There is a high-turnover of individuals filling the

ministerial post that has responsibility for the territories; under the recent Labour

Government (1999-2010) six different people filled the role. A similar high turn-over of

ministers has taken place more recently. Further, the ministerial position occupied

presently by Baroness Anelay of St Johns, as well as dealing with the territories, includes

all Foreign Office business in the House of Lords; the Commonwealth (as an institution);

the Caribbean; human rights; the UN, international organisations, peacekeeping and the

International Criminal Court; climate change; and international energy security policy. She

is also the Prime Minister’s Special Representative on Preventing Sexual Violence in

Conflict. Consequently, the territories are not always represented effectively. It was

certainly true in the past that the UK considered them to be ‘mostly of peripheral

interest’.318

Case Study 3 – UK imposes direct rule on the TCI after serious allegations of

corruption are made

Concerns over poor standards of governance and possible corruption in the TCI had been

growing for some time. For example, the Fuller Report in 2004 noted problems with the

administration and allocation of Crown Land, and similar issues were raised in the 2005 Barthel

Report, and the 2008 Robinson special report. After the last report, the Governor expressed

serious concerns about what was happening and even suggested a Commission of Inquiry into

Crown Land deals should be established. There were other investigations, including the 2006

Bradfield Report which was highly critical of the Public Works Department, and a 2007 UK

National Audit Office report, which highlighted the TCI’s widespread departure from

competitive tendering.

Then in late 2007 and into 2008, the UK House of Commons Foreign Affairs Committee (FAC)

undertook an investigation into the territories, including TCI. A large number of submissions

were made in relation to the TCI, which alleged a range of serious corrupt practices on the part

of the local government.

The FAC stated in its report, “The onus has been placed on local people to substantiate

allegations. This approach is entirely inappropriate given the palpable climate of fear on TCI”,

and therefore recommended the UK establishes a Commission of Inquiry, which the

government did. The Inquiry confirmed, “There is a high probability of systemic corruption in

government and the legislature and among public officers in the TCI”.

318 Orr, 2008, Ev. 171.


PE 593.803 III - 168

The UK government had little choice but to act. As the FCO minister said at the time: “These

are some of the worst allegations that I have ever seen about sitting politicians” and “when

things go badly wrong … we need to act”. An Order in Council, the Turks and Caicos Islands

Constitution (Interim Amendment) Order 2009, S.I. 2009/701, was implemented on 14 August

2009. The Order suspended ministerial government and the House of Assembly for a period

of up to two years. In their place, the Governor was given the power to take charge of

government matters, subject to instruction from the FCO, supported by a range of other British

officials and guided by an Advisory Council and Consultative Forum.

The decision by the UK provoked a strong reaction. Ex-Premier Michael Misick (who is now

standing trial for corruption) said that the action was “tantamount to being recolonised”, was

a “military coup”, and called on local people to “unite and fight against the occupation of the

foreign invaders”, while his short-lived successor, Galmo Williams, said that the TCI was being

“invaded” with a “dictatorship” like “the old red China”. Even the Caribbean Community

rebuked the UK action as a “backwards step” and “counterproductive”. After significant

reform, including a new constitution for the TCI in 2011, which strengthened the powers of

the Governor, local self-government was re-established.

This is another important case study in highlighting several key issues when considering UK

authority over its territories: (1) the UK government’s initial failure (over several years) to take

substantive action to address the growing concerns over corruption, despite various reports

being commissioned and the unease of the Governor; (2) the criticisms of the FAC in relation

to the government’s softly-softly approach; (3) the power of the UK government when it finally

did decide to act via an Order in Council; (4) the stinging criticism of many in the TCI and the

wider Caribbean concerning the UK’s “recolonisation”; and (5) the sustained time, effort, and

expenditure that was required by the UK to return direct rule to the TCI and to investigate and

prosecute those behind the alleged corruption. Ultimately, the UK had no choice but to deal

comprehensively with the issues and reset the TCI’s political and economic system. It was also

seen as a warning to other territories to keep their houses in order.

In addition, the qualifications of the people filling the ministerial role have sometimes been

inadequate. Some of the deficiencies at ministerial level have also been replicated within

the civil service. For example, there is a regular turnover of leadership in the Overseas

Territories Directorate, while FCO desk officers for the territories tend to remain in post

for only 18 months to two years, reflecting general practice in the FCO and across

Whitehall.319 As the NAO argued ‘... the resulting lack of continuity and loss of Territory-

specific knowledge has been a concern for some stakeholders’.320 In short, institutional

memory in the FCO has been lost regarding how matters relating to the territories can be

dealt with most effectively.

319 NAO, 2007.

320 NAO, 2007, 28.



PE 593.803 III - 169

4.2. Economic considerations

The constraints of realpolitik are clearly apparent, but economic considerations are also

important in shaping relations between the UK and its territories when it comes to the

regulation of offshore practices. There are two key inter-linked factors at play – the

determination of the UK to ensure the territories are financially self-sufficient (i.e. there is

no expectation of receiving UK budgetary support), and that they are able to main this

position even in times of economic difficulty. The report considers first the UK’s economic

approach to the territories.

It has been a long-term objective of the UK government – both under Conservative and

Labour administrations – to reduce the amount of UK funding going to the territories. This

stands apart from the approach of France, the United States, and to a certain extent the

Netherlands and their overseas territories in the Caribbean. The expectations of the UK

have largely been fulfilled in that all of its territories in the region - with the exception of

Montserrat, as noted above - do not receive any budgetary support. The territories are able

to support themselves financially, and this suits the UK very well. It is true that funding is

provided by the UK, primarily through the FCO and the Department for International

Development, for projects such as the promotion of good governance, but the sums are

relatively small. The position of the UK is encapsulated in the following quote from

William Hague, the then Foreign Secretary, on launching the 2012 White Paper, The

Overseas Territories: Security, Success and Sustainability: ‘We expect these territories to do all

that is necessary to reduce … their reliance on subsidies from the British taxpayer; and we

expect all Territory governments to manage their public finances sustainably’.321 In short,

self-reliance is extremely important and it is the primary responsibility of the territories to

ensure this.

In order to maintain this self-reliance and financial sustainability, the role of their offshore

financial services is extremely important, particularly for Bermuda, BVI, and Cayman

Islands as noted previously. Any sizable reduction in their offshore sectors would cause a

dramatic decline in their economies, and would very likely require budgetary support

from the UK. As already argued the UK does not want this, neither do the territories.

Indeed as Freyer and Morriss suggest regarding Cayman Islands, ‘[offshore financial

centre] revenue effectively bought Cayman additional autonomy’.322 Therefore the

territories clearly see the benefits of both economic and political autonomy and are resolute

in preserving this position. This then limits what actions both the UK and territory

governments are prepared to countenance; see for example the decision not to adopt

registries of beneficial ownership that are open to the public (see part 3.3. of this report).

The opposition Labour Party in the UK, led by its leader Jeremy Corbin, has been more

forthright arguing that if the territories do not get their house in order direct rule from

London should be considered. He drew parallels with the decision of the last Labour

321 FCO, 2012b, 2.

322 Freyer and Morriss, 2013, 1338.


PE 593.803 III - 170

government to impose direct rule on the TCI. In a debate on 11 April 2016 Corbin argued,

the ‘national scandal [of tax avoidance] has got to end’.323 A few days before an opinion

poll on behalf of Christian Aid and Global Witness showed a clear preference for a strong

UK role in making sure the offshore sectors in the territories are transparent in terms of the

ownership of companies, even though that might impact adversely on their economies.324

Despite such criticism the long-standing view of the UK government in regard to the

benefits and rationale for safeguarding offshore finance in the territories has not changed.

Further, it could be argued that if Labour and Corbyn ever got into power, they would be

faced with the same pressures and retreat from their commitments made in opposition.

Another factor that needs to be recognised here is the strong ties between the City of

London and the offshore centres in the territories. As the report has already mentioned the

City of London had a key role in the initial creation of the offshore financial sectors, and

that link is still important today. Palan has called this a ‘Second British Empire’,325 whereby

UK OCTs and former colonies such as Hong Kong have formed a network of offshore

centres focused on the City of London. As Fichtner argues, ‘This concept is … very useful

to highlight the ancillary role of the UK ‘colonies’ for the strong position of the City of

London in international finance’.326 When one considers the amount of financial flows

between them the strong links become very clear. For example, the value of UK resident

monetary financial institutions lending to non-residents in the Cayman Islands was US$

266.9 billion in the third quarter of 2016.327 While Bermuda has a sizable interest in

supporting the UK’s speciality insurance services via their involvement with the Lloyd’s

Market. This has been called “something of a special relationship”.328 These important links

are not hidden by the UK. For example, Mark Simmonds, then FCO minister in charge of

the territories recognised the key role the territories play in generating billions of pounds

for the UK economy.329

An associated sub-text was the desire on the part of the UK to ensure the territories self-

sufficiency (with the exception of Montserrat) during and after the economic downturn of

2007/08. There was reduced activity in financial services and falls in tourist arrivals and

construction. For example, in BVI new international business company incorporations fell

by 44 % in the final quarter of 2008, while in Cayman Islands, new hedge fund launches

fell by 18 % in 2008 and 10 % of all existing funds were terminated.330 As a consequence,

their economies shrank, in some cases very considerably, and the recovery has been slow

and halting (see Table 5). A related impact was rising fiscal deficits, which were

323 House of Commons Hansard, 11 April 2016.

324 Christian Aid, 2016.

325 Palan, 2015.

326 Fichtner, 2016, 1056.

327 Bank of England, 2016, Consolidated worldwide claims, 2016 Q3.

328 Bermuda Reinsurance Magazine, 2011.

329 Foreign Affairs Committee, 2012.

330 Foot, 2009.



PE 593.803 III - 171

particularly acute in Anguilla, Cayman Islands, and TCI – the latter’s situation being

exacerbated by the well-publicised corruption scandal. In Cayman Islands, for instance,

the government's fiscal deficit reached over 7 % of GDP in 2009.331 One outcome was

insufficient cash available to meet all of the government’s payroll obligations, and

payments to contractors and other suppliers were postponed. In response, the government

won permission from the UK to borrow more to cover its short-term obligations.

Table 5: Territory growth rates, 2009-2014

Territory 2009 2010 2011 2012 2013 2014

Anguilla -24.4 % -6.6 % -1.9 % -1.5 % 0.9 % 9.5 %

Bermuda -5.3 % -2.1 % -4.4 % -4.0 % -2.0 % 0.3 %

BVI -11.6 % 0.0 % -0.7 % -4.5 % 5.6 % 0.0 %

Cayman

Islands -6.3 % -2.7 % 1.2 % 1.3 % 1.5 % 2.4 %

TCI -20.9 % 0.2 % 4.7 % -4.2 % 3.0 % 6.7 %

Despite these difficult conditions the UK still wanted to ensure that the territories’ self-

sufficiency would continue. So it did two things. First, it defended the offshore industries.

So for example, as the 2012 White Paper argued, the UK ‘will continue to represent the

interests of those Territories which meet [international standards] and will strongly

support their right to compete freely in international markets’.332 Also, in December of the

same year, FCO minister Mark Simmons stated: ‘It is not a matter for the UK to impose

[greater transparency] on the Territories, but we encourage them [to do so]’.333 Then in

October 2013 he asserted, ‘Overseas Territories want appropriate regulation and not overly

burdensome regulation’.334 This of course set the scene for the UK’s acceptance in 2016 that

the territories would not have to adopt registries of beneficial ownership that are open to

the public.

The second thing the UK did was to increase its oversight of the territories’ budgets despite

the fact it does not retain responsibility for the day-to-day operation of their economies.

London felt that strong corrective action was necessary to bring budgets back onto a more

sustainable footing. For example, in both Anguilla and the Cayman Islands the UK forced

revisions to local budgets to cut spending and raise revenue by withholding the required

assent of the territories’ budgets until the necessary changes were made. Further, there

331 Moody’s Credit Analysis, 2013, 6.

332 FCO, 2012a, 57.

333 Foreign Affairs Committee, 2012, Ev. 11.

334 European Committee B, 2013, 19.


PE 593.803 III - 172

were the Frameworks for Fiscal Responsibility (FFR).335 The UK was insistent that the

territories (excluding Bermuda due to its greater level of legislative autonomy) should

implement this legislation, which commits the governments to be prudent and transparent

on fiscal and debt management. There was considerable opposition from the territories to

this piece of legislation, particularly from Anguilla and Cayman Islands – some

Caymanians worried the UK would misuse its budget authority to undermine the financial

services industry.336 But ultimately there was agreement to implement the FFR, after the

UK threatened to impose it via an Order in Council. The controversy around the FFR is

important, because it illustrates again that the UK can intervene in economic and financial

matters when it deems it correct to do so. However, the UK’s engagement recently has

focused more on spending rather than revenue.

A good example of this relates to Cayman Islands and the difference in approach between

the Labour government and the Conservative-led coalition government that won power in

2010. At the height of the economic difficulties in Cayman and after the UK authorised

additional borrowing, London stated that an independent assessment should be carried

out on ‘the options for, and potential impact of, new revenue sources including direct

taxation ... which would bring about a significant diversification of [the] revenue base’.337

The subsequent ‘Miller Report’ was issued in March 2010 and ruled out direct taxation. It

argued that the introduction of direct taxes would be “extremely deleterious” to the

country's financial services industry. However, the report called for significant reductions

in government expenditure. Based on the findings of the Miller Report there was a strong

rear guard action in Cayman against the need for direct taxation and this found favour in

the UK after the 2010 general election. The new government led by the Conservatives

dropped the previous administration’s insistence on direct taxes; rather it accepted a plan

of spending cuts and alternative revenue raising measures.

Key findings

• Territories have democratically-elected governments and are economically self-

sufficient, which means the UK is cautious about imposing its will on them.

• Territories’ offshore financial sectors afford them economic self-reliance, and

significant political autonomy, which both they and the UK appreciate.

• There are strong mutually beneficial links between the territories and the City of

London.

• Concerned about the health of the OCT economies after the 2007/08 crash, the UK

took a more hands-on approach, but it has focused primarily on controlling

government expenditure. The offshore sector is seen as a crucial revenue raiser, and

has been strongly defended by the UK.

335 FCO, 2011.

336 Cayman Hansard, 2012.

337 Terms of Reference, Miller Commission, 2009.



PE 593.803 III - 173

Chapter 5: Conclusions and Recommendations

The legal, political and institutional framework underpinning relations between the UK

and its OCTs is nuanced, despite what first appearances might indicate. This report has

disaggregated the relationship to show that key Acts of Parliament make very clear that

the UK is sovereign and has supreme authority to ensure ‘peace, order and good

government’ in the territories, including Bermuda despite its significant level of autonomy.

And it is true that on a small number of occasions the UK has used this power to enforce

changes, such in Montserrat in 1989 when the Governor was given responsibility for the

territories’ offshore financial sector.

The process of introducing ‘Orders in Council’ by the UK can be swift with no scrutiny or

wider parliamentary support required. However, as the case studies indicate even when

Orders are enacted the UK is cautious in using them and, when it does, local opposition is

usually extremely vociferous. More generally the multi-layered nature of UK-Governor-

Territory relations dilutes and blurs the original authority of the UK and the associated

reserve powers of the Governors, and as a result decision-making can be complicated, slow

and frequently deferred.

However, what has been suggested does not mean the UK is now less responsible for what

is happening in the territories’ offshore financial sectors, and cannot act. It is still the

sovereign power, with important levers at its disposal.

In recent years though the UK has taken some political decisions, which have reduced its

role in the territories, most particularly, the new constitutions that have awarded further

autonomy.

Also, the determination to ensure that the territories are economically and financially self-

sufficient and that funding from the UK taxpayer is as limited as possible has further

restrained the UK’s scope of action. As Mark Simmonds, FCO minister said, ‘My view is

that where Territories demonstrate responsible governance, transparency … and

financially responsible management, we should look at ways of continually allowing

democratically-elected Territories to have more and more control over their

jurisdictions’.338 For the time being this is the prevalent view in Whitehall.

So the deep-seated complexities of managing the territories; the reluctance of the UK to

allocate more funds to them, particularly at a time of general economic and financial

retrenchment; the limited support the UK is providing to help diversify their economies;

and of course the uncertainty surrounding the UK’s exit from the EU, means that the UK

is not in a strong position to implement further reform to address concerns regarding the

offshore practices related to tax evasion, money laundering, and tax transparency in the

territories.



PE 593.803 III - 174

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